[English]

We'll proceed in the order on the orders of the day, ladies and gentlemen.

Welcome to the 56th meeting of the Standing Committee on Industry, Science and Technology. Before us we have the following witnesses: from the Canadian Network Operators Consortium, Bill Sandiford and Christian S. Tacit; from the Union des consommateurs, Anthony Hémond; from the Canadian Association of Internet Providers, Monica Song; from MTS Allstream, Teresa Griffin-Muir; and via video conference Steve Anderson, from OpenMedia.ca, who has not joined us yet.

[Translation]

Mr. Chair, I have a small question regarding the motion that I sent to the clerk. I would like to know whether the committee wishes to discuss it before the end of the meeting. That would mean that we would have to set aside 15 to 20 minutes at the end of the meeting to discuss the motion.

[English]

I'm always at the behest of the committee. However, I have to say that we have a large group here for only one hour, Monsieur Cardin. Then we have only 45 minutes for the final group. If we take--

I think actually it might take ten seconds, so maybe just read the motion. I think we'd be okay with that, because we're not opposing it.

[Translation]

We can deal with this in very little time, Mr. Lake. I would be very grateful if we could do this, particularly as far as the witnesses are concerned, because I do not necessarily want to disrupt the proceedings of the meeting. I do not know whether my colleagues received this motion.

[English]

[Translation]

In order to complete the hearings of the witnesses under its study on the recent CRTC'S decision on Internet services billing, that the committee hold a fourth meeting in order to hear the Minister of Industry and the department officials.

[English]

[Translation]

[English]

We would like to thank the Government of Canada and this committee for addressing these important issues. We welcome any questions you may have.

There is one final topic that I would like to address. We have heard Mr. Bibic from Bell consistently talking about their billions of dollars of investments in their network. To Mr. Bibic we say, “You're welcome”. The competitive ISPs in Canada spend hundreds of millions of dollars with Bell every year. We are sure that our expenditures are well used by Bell and the other incumbents for their capital needs.

We hope that the CRTC will amend the notice of consultation to deal with these broader concerns in a clear manner as quickly as possible. A principled and consistently applied wholesale regulatory regime will lead to vibrant retail competition. Canada cannot afford to continue with the status quo.

The notice of consultation issued by the CRTC on Tuesday does not address the core problems with the current regulatory framework for wholesale services. In fact, the questions posed by the CRTC in the notice are unclear and raise the prospect of retail regulation of Internet services, which would be a step backwards.

If this regulatory framework is adopted by the CRTC on a going-forward basis, determinations such as the recent UBB decisions will never be made again.

The CRTC should also require incumbents to provide competitors access that is fairly priced to new network capabilities and facility types as soon as these become available and are deployed by the incumbents to provide services to their own end-users. Otherwise, competitors will fall behind and competition will be unduly lessened.

CNOC suggests that wholesale broadband access services should be regulated as a broadband platform that can support many types of retail services instead of being regulated by comparison with or forced to mimic the retail Internet services of the incumbents; configured in a manner that allows competitors to choose the attributes of the services provided to consumers, such as speed, throughput, quality of service, type of service, aggregation, bundling, etc.; and priced so as to allow only incumbents to recover the associated costs of providing the services, plus a reasonable and consistent mark-up that recognizes the essential nature of these services.

The second problem is that the wholesale customers of the incumbents are not viewed by the CRTC as being of equal stature with the incumbents when it comes to competitive issues.

So you may ask how we got to this point. The answer is that framework for regulating wholesale high-speed services is broken. There are two main reasons for this. First, the CRTC treats these services as if they are used by competitors to deliver only Internet access to their end-users. This may have been true in the past, but the situation is vastly different now. Incumbent wholesale high-speed services now constitute the broadband platform that competitors need to offer almost all telecommunications and broadcasting services to consumers today and for the foreseeable future.

The other point we wish to raise is that Bell's Internet traffic measurement techniques are not transparent to competitors or end-users, and are prone to errors that have led to overbilling.

No other major incumbent telephone company has applied UBB to wholesale services. While the four major cable companies have had the ability to charge for usage for years, none but Vidéotron has actually done so historically for wholesale services.

Regulators from other countries have not accepted Bell's approach and the CRTC should not be doing this either.

Competition results in investment. Usage-based billing on wholesale service is the artificial tool that enables Bell to defer investing in its network by repressing competition and, in so doing, demand for bandwidth.

Bell must invest to keep up with what the cable carriers are doing. Bell's recent public statements to the effect that investment in broadband networks and services is one of its strategic imperatives is sufficient proof of this.

Bell has threatened many times in the regulatory and political forums that if it does not get its way, it will reduce its investment in its networks. This has never happened before, and the opposite is true.

The appendix to this presentation gives some background information on CNOC. We will not discuss the many problems caused by the CRTC's usage-based billing decisions that have already been adequately addressed by others, but there are some additional issues we would like to raise.

My name is Bill Sandiford. I am the president of CNOC, and also president of Telnet Communications, a mid-size competitive Internet service provider. Accompanying me is Mr. Tacit, counsel to CNOC.

Mr. Chair and committee members, thank you for giving us the opportunity to appear before you today.

[Translation]

: I would like to thank the committee for inviting me to testify. My name is Anthony Hémond, and I am a lawyer and analyst in telecommunications with the Union des consommateurs. I would like to thank the committee for inviting me to testify. My name is Anthony Hémond, and I am a lawyer and analyst in telecommunications with the Union des consommateurs.

The Canadian Radio-television and Telecommunications Commission said the following about usage caps that Bell Aliant and Bell Canada want to impose on independent providers and their clients: “[...] the Bell companies' proposals would incite heavy end-users to reduce their usage, including during peak periods”.

However, the usage caps as proposed by the Bell companies would not in anyway incite users to reduce their Internet use during peak periods, since the application of these caps is not based on the usage period, but on a monthly period.

It has been established that usage caps such as the ones that have been proposed do not in any way serve as an incentive to encourage users to reduce their usage of bandwidth, as indicated in the Bell companies' proposals in their tariff applications approved by the commission. Moreover, this tariff application pertained to the Internet service that is most popular with consumers.

When you look at the graph that I provided in my presentation, you can see that the users whose bandwidth usage is between 80 and 300 gigabytes have no incentive to reduce usage and, incidentally, low users are billed excessively high amounts.

We would also like to draw the committee's attention to the cost billed for bandwidth. It was set at $1.125 per gigabyte for service which was at that time a 5-megabyte service per second, whereas the market price was 3¢ per gigabyte. The Bell companies were asking up to $1.875 per gigabyte, which is 60 times greater than the market price. Accordingly, the lowest resale price imposed by Bell represents seven times the cost of purchasing a gigabyte.

According to the chair of the CRTC, who repeated this during his testimony before the committee “[...] less than 14% of users are responsible for more than 83% of Internet traffic”. Understand that this data pertains to traffic and not network capacity. In other words, it is possible, on this basis, to conclude that small users are subsidizing heavy users who are already being charged seven times the actual cost.

Despite what is being said, there was never any explosion of average bandwidth use on the Bell network from 2002 to 2008. Indeed, growth was linear and extremely predictable, as shown by the graphs in my presentation.

The chairman of the CRTC, in testifying before this committee, spoke about the “over-the-top” services on the Internet. He was referring in particular to services such as Netflix, or TOU.TV, namely the provision of broadcast services over the Internet. These services are in direct competition with those provided by Bell, whether it would be satellite Bell TV services or IP television services for which the Bell companies are offering unlimited Internet use monthly packages.

I would respectfully submit that it is because of technological development and innovation that these Internet usages are now commonplace and desirable.

The usage caps imposed by Bell companies, that they want to force their competitors, namely the independent ISPs to adopt, would hinder the development of IPTV services by independent providers, and it would also hamper the development of other innovative services that may be part of tomorrow's Internet landscape. Bell's proposals are, in many respects, anti-competitive and likely to limit innovation.

Today it is obvious that the Bell companies are in a position of conflict of interest because of their vertical integration, making them both a retail Internet service provider and a wholesale provider to broadcast distribution undertakings. This phenomenon will be even more in evidence with Bell's purchase of CTV.

The order in council that provided the CRTC with instructions on the implementation of Canada's telecommunications policy is, amongst other things, the reason behind the CRTC decision regarding usage-based billing.

Under this order in council, the CRTC, when making regulations, must take measures that are symmetrical and neutral as far as competition is concerned. The commission is justifying its decision to authorize Bell to force Internet service resellers that use its network to impose usage limits on their clients because the cable companies use the same practices. However, this justification fails to consider the technological differences that exist between these two networks, which to a certain extent could justify cable companies' imposition of usage caps.

We will reiterate how surprised we were by this CRTC decision to impose Bell commercial practices on resellers without any regard for the competition rules that the CRTC is supposed to be protecting, and which regulate the relationship between competitors and their clientele. The CRTC has decided to abstain from regulating this aspect of telecommunications.

Given the desire of the Bell companies to impose their business model, namely to limit usage, and the support that the CRTC appears to be giving to Bell's proposal, we would urge the committee to study solutions that may resolve part of the problem, namely, the functional separation of the Bell companies.

This is a solution that both Great Britain and New Zealand agreed to adopt, and that the European Union integrated in its directive pertaining to telecommunications services:

The purpose of functional separation, whereby the vertically integrated operator is required to establish operationally separate business entities, is to ensure the provision of fully equivalent access products to all downstream operators, including the operator's own vertically integrated downstream divisions. Functional separation has the capacity to improve competition in several relevant markets by significantly reducing the incentive for discrimination and by making it easier to verify and enforce compliance with non-discrimination obligations.

The results of functional separation in the United Kingdom and in New Zealand must be underscored:

[English]

Functional separation was followed by a flurry of investment activity by entrants, resulting in the strengthening of competitors Carphone Warehouse, Tiscali UK, and BSkyB, and their shift to competing over more flexible unbundled loops instead of almost solely through wholesale offerings. Prices fell by over 16% each year between 2006-2008. Between the last quarter of 2006 and that of 2008 New Zealand saw its penetration per 100 rates jump, surpassing those of Austria, Italy, Spain, and Portugal; it saw speeds increase more than in any other OECD country, and the primary competitor to Telecom New Zealand, TelstraClear, invested in its own fiber ring connecting all of South Island's towns.

[Translation]

During this time in Canada:

[English]