Ruling due on rates of indie net providers

A letter to the federal cabinet late last summer was blunt about the fate of small internet providers: “This chapter … rings the death knell on competition.”

EBOX, which billed itself as the largest independent internet service provider (ISP) in Quebec, with almost 100,000 customers, was arguing that Canada’s telecom regulator went seriously wrong in a decision on broadband rates last year.

So wrong, the company said, that it was virtually impossible for EBOX to keep offering high-speed internet service at good prices.

“(The ruling) essentially put the nail in the coffin after fighting for years in order to obtain just and reasonable rates.”

By the end of this week, the government must rule on a trio of petitions asking it to overturn that controversial decision by the Canadian Radio-television and Telecommunications Commission (CRTC).

It’s the latest step in process that’s spanned at least seven years as the CRTC reviewed the wholesale rates that small ISPs pay to access the networks of major telecom companies like Bell and Rogers

Whatever the federal cabinet decides, it comes too late for EBOX. After 25 years in business, the company sold itself to Bell in February, just five months after its letter to the government.

Others still in the industry say the combination of regulatory delays and last year’s stunning CRTC reversal, which reverted to higher wholesale rates, has been steadily diminishing or killing off independent ISPs.

“If the rates are not corrected, this industry can’t survive the way it is. And EBOX is a case study in that,” said Andy Kaplan-Myrth, vicepresident of regulatory affairs at TekSavvy, one of the largest independent ISPs with more than 300,000 customers.

TekSavvy, as well as the wholesale internet lobby group Competitive Network Operators of Canada (CNOC) and National Capital FreeNet (NCF), an Ottawa-based notfor-profit ISP, filed the petitions appealing the CRTC ruling.

“Everybody has just been holding on for as long as we can, waiting for the rates to be resolved,” KaplanMyrth said, noting that TekSavvy has lost 20 per cent of its customer base since August 2020 when it had to increase prices as the process dragged on.

“It’s really not sustainable and the government has to make a choice,”

(EBOX’s former CEO and cofounder Jean-Philippe Béïque said it would be inappropriate for him to comment on whether the CRTC rates were a factor in the company’s sale.)

“A lot of (wholesale ISPs) are going to die if the decision is not favourable to competition,” said MarcAndré Campagna, CEO of Oxio, an independent ISP with 30,000 subscribers he co-founded in 2019 after developing cloud-based operations and billing software.

“If that happens, the big guys will

win, there’s not going to be any competition anymore and they’re going to be able to keep jacking their prices up.”

People living in most urban and suburban areas have two main options for internet service, the telephone or cable company. The wholesale broadband system aims to give consumers more service providers to choose from while avoiding the expense and disruption of building additional telecom networks. Independent ISPs pay the major telecom companies set rates for network access and typically offer lower retail prices than the big players to stand out.

That usually means slim profit margins, but there are hundreds of small ISPs across Canada and the wholesale industry was growing in recent years.

Yet, CRTC data shows that trend reversed between 2019 and 2020, when wholesale ISPs lost a full percentage point of market share and dropped back down to 8.5 per cent, or 1.2 million residential internet customers.

Their total revenues flatlined at $726 million and wholesale ISPs earned less per customer in 2020 than the year before — their average revenue per user dropped to $47.94 per month compared to more than $61 for large telephone and cable companies.

Independent ISPs predict those numbers will be even worse in 2021 and they blame the CRTC.

The CRTC’s review process began years ago and by 2016 it set interim wholesale rates, prices the small ISPs complained were too high.

By 2019, the CRTC published much lower final rates and ordered the large telecoms to pay retroactive refunds to the wholesale ISPs.

Small ISPs celebrated, with some announcing immediate price cuts. Oxio, for example, set its prices based on the new wholesale rates, Campagna said.

But several big telecoms launched a flurry of appeals (to the Federal Court of Appeal, the cabinet and the regulator itself ) and an interim court order put the CRTC decision on hold. Those lower wholesale rates never came into force.

Oxio has raised $50 million in venture capital investment on the strength of its proprietary software and other innovations, he said, but without that, it would have struggled to stay afloat.

The incumbents lost most of their appeals but it was the CRTC itself that stunned the industry with its decision a year ago. The commission said it made numerous mistakes in the 2019 ruling and, rather than embark on another lengthy process, it said it would largely reinstate the temporary 2016 rates.

“When the 2021 decision came out, it was way worse than we could have imagined,” said Shelley Robinson, executive director of NCF.

The not-for-profit ISP has about 3,000 subscribers, 300 of whom live in Ottawa Community Housing, and also provides other digital literacy services.

But the big telecoms say the CRTC got it right last year.

In a filing opposing the cabinet appeals, a group of cable companies including Rogers and Shaw said using the “radically lower” 2019 rates would require the cablecos to “subsidize resellers’ businesses.” It would also reduce the money the big companies have to invest in their own networks by as much as $3.7 billion over five years, they said.

Separately, Bell said the 2021 ruling adjusted the wholesale rates it can charge to slightly below the 2016 levels, meaning it still owes some retroactive payments. The company also said it is investing more — an additional $500 million over two years — because of the ruling.

CRTC Chair Ian Scott told a parliamentary committee in February that he recognizes the decision is “creating challenges for some competitors,” but said he’s confident the regulator did the “responsible thing.”

“It is true that some competitors lowered their retail rates on the basis of that decision, but that was a business decision and a risk that they assumed, given the appeals that were being filed at the time,” Scott said.

CNOC and TekSavvy argued in their cabinet appeals that Scott is biased in favour of big telecoms. They point in part to the fact that, as the Star first reported, the CRTC chair had a beer with the soon-tobe CEO of Bell in 2019 after the company appealed the original rates ruling.

Geoff White, CNOC’s executive director and general counsel, said the “long, drawn-out saga” has hurt many of the group’s members.