TORONTO (Reuters) - Canada’s government will review a regulatory decision that effectively blocks small Internet providers from offering unlimited downloading to customers for a flat fee, a ruling that favors a handful of big carriers.

The regulator last week said BCE Inc, the parent of Bell Canada, could charge wholesalers that lease bandwidth on its network on the same usage basis it charges its own customers, minus a 15 percent discount.

That would force small carriers to pass along the extra cost and prevent them from offering cheap package plans to their customers.

Prime Minister Stephen Harper said he was “very concerned” about the ruling and had asked Industry Minister Tony Clement to lead the review.

“I will be reviewing this decision very, very quickly and will be making recommendations very, very shortly,” Clement told reporters in Ottawa, adding his decision on the matter could come within days.

The ruling by the Canadian Radio-television and Telecommunications Commission (CRTC) was due to take effect on March 1. The government has the power to alter the decision unilaterally, reaffirm it or send it back to the CRTC with specific concerns.

Major providers such as Bell, Shaw Communications and Rogers Communications charge customers extra if they download more than the monthly limits they set, typically between 20 and 60 gigabytes.

Small providers have offered plans with 200 gigabyte ceilings, or even unlimited use, an increasingly popular option for consumers who download movies, music and games over the Internet.

BCE and other major telecom operators that have spent heavily on infrastructure are required to lease bandwidth on their networks to small providers to encourage competition.

Clement later told CBC television that “consumers are radically changing their viewing patterns” and expect a choice between traditional television and online entertainment from companies such as Netflix.

“The last thing you do, I would argue, is create a situation where only one business model is going to be allowed and therefore choice is going to be taken away from consumers,” Clement said, adding he was mindful of discouraging broadband investment.

The September launch of Netflix’s online-only film and television streaming service in Canada spooked the incumbent providers because of the heavy downloading required.

POLITICAL FIGHT

The Harper government has overturned CRTC rulings in the past. In December 2009 it allowed Globalive Communications Corp to launch its Wind Mobile wireless service even though the CRTC had ruled the company violated rules limiting foreign ownership because it had the backing of Egypt’s Orascom Telecom.

After public outcry, Canadian opposition parties have lined up to voice their concerns about the Internet billing decision.

“We do not agree with the CRTC’s decision on usage-based billing, and we will bring the fight for an open and innovative Internet environment to Parliament,” Liberal critic Marc Garneau said before the government announced its review.

“Usage-based billing is squashing competition and hitting Canadian consumers in the pocketbook,” said Charlie Angus of the New Democrats.

Bill Sandiford, who heads the Canadian Network Operators Consortium and independent ISP Telnet, welcomed the government’s review and encouraged it to move fast.

“Canadian consumers can not be subjected to the confusion in the market that will occur if usage-based billing is implemented on March 1 while all of this is still going on,” he said.

The CRTC’s decision has had an immediate impact. One of the small providers, TekSavvy, will cut its usage ceiling to 25 gigabytes effective March 1, the date the ruling is due to come into force. On Tuesday, its website was festooned with links to groups opposing the pricing framework.

Citizen group Openmedia.ca said on Tuesday its “Stop The Meter” petition opposing usage-based billing had garnered more than 200,000 signatures, up from around 40,000 before the CRTC handed down its decision.

Openmedia.ca’s national coordinator, Steve Anderson said Clement would have to do more than ask the CRTC to tinker with pricing.

“He must either overturn all the CRTC rulings that force pricing schemes on Big Telecom’s independent competitors, or at minimum have the CRTC revisit the entire premise of forced UBB pricing,” he said.