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Why not a metered Internet? Add to ...

More than half of Canadians surveyed last summer thought their Internet plans were unlimited - a veritable buffet of bandwidth, with all the high-definition video streaming and file-transferring they could consume.

How wrong they were. More than 90 per cent of the country's plans are finite, with set limits and stinging charges for going over. The vast majority of people in that poll by Solutions Research Group had never even heard of the concept of paying for Internet based on how much they used.

Bizarrely, an obscure regulatory tweak made by the Canadian Radio-television and Telecommunications Commission last year, which effectively kills the unlimited download plans offered by a handful of smaller providers, has awakened a nation's rage. And now the national discourse is dominated by how much Canadians should pay for Internet service, down to how much each gigabyte of data should cost them.

But consider the incredible week that just was: On Monday, growing consumer uproar over the regulator's move on Internet pricing forced Industry Minister Tony Clement to announce he'll examine the matter; then, on Tuesday, the Prime Minister tweeted that he wanted a formal review of it; on Thursday, the CRTC's chairman was hauled out of a crucial set of hearings to appear before a committee of hostile MPs to discuss it; and on Friday, none other than celebrity blogger Perez Hilton chimed in on the state of Canada's Internet with: "Yikes!!"

At the root of the circus this issue has become, though, is one simple question: Should Canadians' Internet use, like hydro or water, be metered?

In 2010, the average Canadian Internet customer downloaded and uploaded 15.4 gigabytes of data every month - roughly the equivalent of 10 feature films. That, of course, includes those on dial-up and is also increasingly out of date because of changing consumer habits that have made Canadians the most voracious online video-viewers globally, according to the Berkley Research Group.

While only 10 per cent of users currently go over their monthly limits - which range widely from two to 175-gigabytes - and pay so-called "overage" fees, the number is certain to climb as people get more comfortable with technology. The arrival in Canada of Netflix, the online video-streaming service that has some flicking the kill-switch on their cable subscriptions, is only increasing traffic - one traffic-management company estimates that Netflix can now account for upwards of 20 per cent of all Internet traffic between 8 p.m. and 10 p.m.

Unlike the withered music "industry," which let alternate technologies erode its core business, Canada's telecom companies are not ceding ground. They own the wires - and despite the erroneous perception that they are some sort of public service, they intend to charge real dollars for each byte. One small problem: They're regulated.

Although the CRTC cannot regulate the price of Bell's retail Internet customers, it can regulate network access that big companies sell to smaller providers, such as TekSavvy. These smaller companies, as CRTC chair Konrad von Finckenstein told MPs, were mandated into existence to "discipline" the market. They did this with the unlimited plans that were safe havens not only for online-movie watchers, but also for small businesses, telecommuters and entrepreneurs.

Then, two weeks ago, the regulator allowed Bell and Rogers to charge smaller ISPs by the byte, in a way that effectively kills all-you-can-eat Internet plans. And despite the fact that few Canadians were on these plans, a nation essentially interpreted this as the end of the Internet as they knew it - as in, the beginning of Internet "metering." It was really just an extension of it, but they were outraged nonetheless. The government threw it back at the regulator. But Mr. Clement told reporters that, no matter what the regulator's review found, he wouldn't approve it.

It was a stunning denouncement of a practice that has existed since 2006: The idea that users should pay for how much they download. Big telecom companies, mainly Bell, found their rational for pushing the change - that bandwidth was finite, that Canadians were simply using too much Internet - earned nothing but calls that this was more gouging.

Lawrence Surtees, the lead telecom analyst at research firm IDC Canada, points out that the cost to transport each byte is constantly falling - especially on fibre cables, buried in bundles of multiple strands. Of the CRTC's average monthly download rate, which companies argue could strain their networks, Mr. Surtees says, "That's nothing; one fibre strand can carry more than that per second."

And this is where the question of Internet metering hits a logical brick wall that most people tend to forget. Internet service providers are for-profit, publicly traded companies with responsibilities to their shareholders. CEOs of the country's phone and cable companies would be fired if they didn't capitalize on exploding bandwidth usage. Not forcing metered use on their small rivals, something they already do on their own customers, would inevitably hemorrhage customers to their rivals.

Even as Mr. von Finckenstein said he would review their decision, he stood by the idea of a metered Internet. "Usage-based billing is a legitimate principle for pricing Internet services," he told the MPs. "We are convinced that Internet services are no different than other public utilities."

But unlike gas and electricity, which are consumed and disappear, the amount of bandwidth being used simply swells and contracts in the carriers' pipes. The cost to transport a gigabyte can be lower than a penny, though Bell charges between $1.50 to $2.50 for each gigabyte you go over your plan - a fee that varies not by time of day, but whether you are in Ontario or Quebec.

In other words: It's the market, stupid. Telecom companies in the U.S. and Japan manage to be profitable without strict monthly download limits such as the ones in Canada. One U.S. telecom executive said in a recent interview that his company would do it if they could, but that it would drive their consumers to competitors - in other words, the cost of at least some so-called bandwidth hogs was worth it in the end.

Metering the Internet, in other words, tends to come as a result of market forces rather than out of a regulatory order - in fact, the Conservatives ordered the telecom regulator to rely more on market forces back in 2006. But the idea that Internet pricing depends on the "market" is, it seems, offensive to consumers. That would be irrelevant, perhaps, if election fever wasn't in the air. And if the government and the regulator didn't frequently intervene in the telecom sector precisely to promote competition against the current phone-cable duopoly. Remember when long-distance was charged by "usage" without competitors to discipline the market?

As Mr. Surtees notes, the big cost is building the network. That's done. But those networks are still evolving. Companies are now spending billions to rewire all the way into each home, replacing the so-called "last mile" of aging copper with ultra-fast fibre.

But without an incentive to profit from these networks, telecom companies may stop investing. That's why Ronald Gruia, an analyst with Frost & Sullivan who thinks the usage-based billing decision was flawed, is hesitant to advocate a fully unlimited model. "Obviously, the consumer is concerned with being billed a lot, but you want to make it economically feasible to enhance that last mile," Mr. Gruia said. "It's a delicate balance."

Follow on Twitter: @iainmarlow

 

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