The Chilling Effects of Usage Based Billing

The internet has been all atwitter with news about the recent CRTC ruling about Usage Based Billing. While Stephen Harper has tweeted that this really unpopular decision will be reviewed, I wonder how much of his concern is with the outrage with the voters, rather than a true understanding of the impact this change will have on Canada.

There are several important issues at play here, most of which are interrelated. The most immediate factor, and likely the cause of all the uproar, is that of consumer cost. Some existing internet plans, such as the "High Speed Internet Premium" plan from TekSavvy for $31.95 a month previously received 200GB of bandwidth. According to the new rules passed down from the CRTC, the 200GB limit is being reduced to 25GB, with a hefty rate of $2/GB of data beyond those limits. The difference in bandwidth: 175GB. To make up the difference in data would cost an additional $350. See a little difference in price there?

The next point I'd like to address is that of competition, and the lack of top-tier providers. There are very few ways in which households can get internet access. ADSL service uses phone lines, and almost always uses the telephone lines provided by Bell Canada. Cable services, by the regional cable provider, such as Rogers, Shaw or Cogeco. In some very select areas, fibre internet is available when the fibre infrastructure has been installed. In other areas, people are able to get line-of-sight wireless access. All of these provide high-bandwidth broadband connections. The most basic service, sometimes the only service available in remote communities, is dialup internet. For most, the only real choice is between cable internet, and ADSL internet.

In either case, the infrastructure in place (phone lines or cable lines running to your house) is owned and operated by the big telco/cable companies. Laying down this infrastructure is usually done when a neighbourhood is being built, and there is considerable cost. Laying down a fibre connection after a community has been built is even more expensive, as streets would need to be ripped up and repaved. Already we can see that new entrants as a top-level provider are at a serious disadvantage. While it is true that there are a number of other internet providers, most of whom provide ADSL service, they are using the existing infrastructure, provided in most cases by Bell Canada.

They have up until now been paying a base rate per line, and were able to attract customers by offering cheaper prices. Some companies were able to provide considerably better customer service than Bell as well. Presumably, the profits these companies have been earning could be used to expand their businesses, possibly by buying their own infrastructure. With the changes to UBB, their available margins are trimmed down to make a small profit, but certainly not large enough to make any large capital investments. It also forces them to play on the same field as the larger telcos. They have much less to differentiate their services from the big guys. So we can certainly see how UBB has a detrimental effect on smaller ISP providers, such as TekSavvy.

The real chilling effects that I see, will be on online media services. Online movie rentals are getting popular. Netflix is advertising heavily on TV these days, and while their library of videos isn't all that great here in Canada, the idea is certainly intriguing. We don't have access to Hulu here in Canada, but many people are able to stream TV shows from Canadian networks, like CTV (owned by Bell's parent company BCE). Somehow, I don't think as many Canadians will be looking to stream video if UBB becomes reality.

There are other services which use video. Who posts videos of their kids onto sites like Facebook so grandma and grandpa can see them? Yeah, that's not going to happen as much in Canada. Many games can be purchased on Valve's Steam, and downloaded to your computer. For example, the Grand Theft Auto 4 bundle is 32GB. This is already 7GB over the 25GB limit. We're already talking $14 in download costs, assuming nothing else is downloaded for the entire month. Online backup services onto the cloud, like Dropbox are terribly convenient for sharing files across networks. Canadians are going to think twice about things like that.

More to the point, businesses looking to develop streaming technologies for sale to the end consumer are going to look elsewhere in the world to roll these services out. They likely won't even develop them in Canada, instead settling down somewhere in the United States. It can be demonstrated that when products launch in the US, it can take a long time before they're available in Canada, assuming they ever do. This will directly impact research at Canadian universities in new experimental digital media projects.

In mandating Usage Based Billing, the CRTC is not just hitting Canadian wallets now, but is also harming small ISPs, and will have a chilling effect on the Canadian digital economy.