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Internet usage caps draw ire of business Add to ...

Nicolle Morton's company makes websites -- fancy ones that aim to capture attention with creative graphics and video. For eight years, it has been a prosperous business. But more recently, it has run into a new, and peculiarly Canadian, obstacle.

A few weeks ago, Ms. Morton was in a Toronto boardroom advising a major public sector client. The assignment: to build a website, rich in video and interactive features, that would outline to the public the benefits of a huge proposed infrastructure project.

The discussions kept getting derailed by the same concern. In Canada, many Internet customers have strict limits on the amount of data they can download and upload. If they go over those limits, Internet providers such as BCE Inc.'s Bell Canada unit and Rogers Communications Inc., charge them extra fees. Would this website actually use up too much of the Internet?

"The client was producing a big, beautiful, heavily produced video that they wanted to present in the best possible format. They had spent a fortune on producing this," said Ms. Morton, who co-owns Peapod Studios in Hamilton, Ont. "They were very concerned about doing it, mostly because of the cost to end users - the cost to deliver it.

"It's just an interesting thing that you have to be confronted with when you're in the middle of a creative storm."

It is the sort of worry that will grow more serious after a decision this week by the country's telecom regulator. Stringent download limits for Internet plans, and the charges for exceeding them, have long angered consumers and citizens' groups. Many have sought to get around those download caps by turning to "unlimited use" plans offered by smaller providers that lease space over the networks of large providers such as Bell.

But a CRTC ruling on Tuesday sent a stark message to customers on those plans: Watch what you download, or it will cost you. The regulator said that large providers can begin charging smaller ones by the gigabyte, making it nearly impossible for the latter group to keep offering unlimited packages.

And in an era when online video -- and bandwidth use -- are exploding, people like Ms. Morton fear that Internet providers are really cracking down on the disruptive online technologies to boost their own profits at the expense of innovation.

"We're not going to make it bigger, better, more beautiful, more interactive, if this keeps up," she says. "It's kind of a sad time."

Canadian Internet providers such as Bell and Rogers and Shaw Communications Inc. have had download limits in place for years. Starting in late 2006, most plans in Canada were capped. Large providers, after all, have invested billions in laying wires across the country and argue that bandwidth on those networks is finite and expensive.

But few Internet users ever reached the caps. That's starting to change now, with the advent of legal movie-rental and television services such as Netflix. Throughout North America, Netflix now accounts for more than 20 per cent of all Internet download traffic between 8 and 10 p.m., according to Sandvine, which sells equipment to manage network traffic.

Now even non-tech-savvy users are bumping up against download limits, as households seek more entertainment online and connect gaming consoles to the Internet.

On a conference call this week, a financial analyst asked Netflix CEO Reed Hastings whether he was concerned that the introduction of usage-based billing means Canadians would have to absorb larger Internet bills in order to use his company's service. "We're definitely worried," he said. "That is potentially a significant negative for Netflix."

In the United States, the country's largest Internet provider, Comcast Corp. , has a download cap of 250 gigabytes, which is roughly the equivalent of downloading 125 movies. That's far more downloading than the big Canadian providers offer.

Bell's largest plan goes up to 75 gigabytes for Ontario customers, then charges $1 for every gigabyte over that limit, to a maximum of an additional $60. For extremely heavy users, a second level of extra charges exist if they exceed 300 gigabytes. They will then pay $1 for each and every gigabyte over that limit until the end of the month. (Customers can also take out $5 insurance packages that allow an extra 40 gigabytes.)

John Lawford, a counsel with the Public Interest Advocacy Centre, said download caps in Canada have become so low that they are beginning to look less like traffic management measures and more like a defensive manoeuvre, by which companies such as Bell, Rogers and Shaw try to protect profits at their TV distribution and broadcasting units.

In the U.S., those generous download allowances may eventually dry up -- but the competitive pressures are different. "Never having established a significant byte-cap, none of the U.S. providers have felt ready to be the first one to do that," says a senior executive at a major U.S. Internet provider. "It's very hard right now to be the first one in the marketplace to impose what you might call an onerous byte-cap."

Here, the regulator has long encouraged "economic" measures, or price, as a means to manage network traffic, as opposed to allowing carriers to single out and squeeze bandwidth-hogging sites such as Netflix or BitTorrent.

Mirko Bibic, Bell's senior vice-president for regulatory and government affairs, said Internet traffic is growing at 30 per cent annually, but that the vast majority of customers remain under their limits. Rogers says the same thing.

"There's exploding bandwidth consumption," Mr. Bibic says. "You need to keep up with that. We do it by traffic management when we have to, during peak periods. And we invest hundreds of millions of dollars in our network. And the third one is pricing. Pricing is the CRTC's preferred method for us to tackle this issue."

The average Bell customer use is around 16 gigabytes-a-month, while the median is only 5 gigabytes, a difference that Mr. Bibic attributes to heavy-downloaders. He says that Internet networks take a long time to show a return on investment, and that pricing helps them do this.

"I wouldn't be surprised, at some point, and probably sooner than later, if [U.S. Internet providers]move to usage-based billing, given the economics of the Internet," he added.

Mark Goldberg, a telecom consultant in Toronto, thinks the age of unlimited plans on smaller Internet providers is not necessarily over. Smaller providers, deprived of the ability to offer unlimited services, must revive old business models and innovate in ways that could benefit Canadians, he suggests.

And incumbents like Bell might, he suggests, be unwise to continue to shrink Internet packages to the point where even average customers start to incur extra charges every month, since answering their complaints with customer service representatives eats into profits. "Do you want to stick a $10 charge on their bill when it costs $15 to answer the phone?" he asks.

But others aren't so sure. Ms. Morton, who runs the Hamilton web development firm, worries that her company's unlimited plan will eventually get phased out as the competitive need for providers to offer unlimited plans is removed. Many companies she deals with already choose to host their websites abroad, where they won't be impacted by data transfer constraints here.

Usage charges, she adds, go well beyond watching movies online. They influence not only her clients, but small businesses like hers, which are using new but bandwidth-heavy technologies such as cloud computing to improve their productivity.

Jean-François Mezei, a computer consultant in Montreal who runs the firm Vaxination Informatique, took so much offence at the CRTC's decision that he took his case to the highest office in Canada. On Wednesday, he toiled late into the night on his computer, tapping away at a 27-page document. It was an appeal to the federal cabinet, which he e-mailed before a 90-day deadline that ran out at 11:59 p.m that night.

It is truly a last-ditch attempt, filled with diagrams he says disprove the regulator's rationale for the decision. Mr. Mezei does not like that the CRTC is helping Bell flatten out its competitors' offerings, removing his right to choose between competing services.

What really annoys him, and what he thinks will fascinate Quebeckers, is that that the charges for exceeding the download caps by Bell are only $1 per gigabyte in Ontario but $2.50 in Quebec (which Mr. Bibic says are related to market dynamics).

"I could have gone on another 20 pages with what's wrong with this," Mr. Mezei says. "At the end of the day, the government will decide on competition. That is something the government has said they cherish - competition and free markets. And allowing Bell to impose its own limits on everyone is not compatible with a government that wants to foster competition."

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