Bell’s appeal of Internet ruling ignites debate over competition, investment incentives

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BCE Inc.'s appeal to the federal cabinet arguing that it should not have to provide competitors access to its fastest fibre Internet service has pitted independent players and consumers against the telecommunications giant in a debate over sustainable competition and choice versus stifling incentives to invest.

BCE filed a petition to the Governor in Council in October – one day after the election that swept the Liberal party into power – challenging part of a ruling from the Canadian Radio-television and Telecommunications Commission (CRTC) that forces the company to give small Internet service providers (ISPs) the ability to resell its highest-speed broadband service, which it is still in the process of building.

By late December, more than 80 individuals, companies, industry groups, municipal leaders and academics weighed in with their own thoughts on BCE's appeal.

Montreal-based BCE said last year that it plans to spend $20-billion on capital expenditures – including investments in bringing fibre-optic cables directly to customers' homes to replace its legacy copper wires – through 2020. An expert report the company commissioned for its appeal estimated fibre-based spending alone accounts for 30 per cent of the investments BCE is making.

The report, from Washington, D.C.-based consulting firm Economists Incorporated, warned that if the CRTC's July ruling stands, BCE will spend between $72-million and $384-million less per year on such investments in Ontario and Quebec, which could lead to the loss of between 2,880 and 15,360 jobs. (Bell Aliant began a large scale fibre-to-the-home buildout in 2009 and it now reaches 65 per cent of its operating territory in the Atlantic Provinces. BCE argues it was able to make that investment because there were no regulatory disincentives at the time.)

BCE secured support from network suppliers such as Ericsson, Nokia, Samsung and Sony as well as a handful of small construction companies and 14 mayors from municipalities including Toronto and Ottawa, all of whom generally argue that the company's investment in fibre is necessary for innovation and the economy. Blackberry Ltd. chief executive officer John Chen also wrote a letter in support as did the Canadian and Ontario chambers of commerce, the Canadian Council of Chief Executives, the Bell Pensioners' Group and fellow telephone companies Telus Corp. and SaskTel.

"Canada's telecommunications policy should not put high-speed broadband infrastructure investment at risk," wrote Christopher Vivone, head of government relations for Cisco Systems Inc. in Ottawa. He argued that policies that encourage competition at the resale level "squelch high-speed broadband deployment and depress economic growth."

On the other side of the debate are the small ISPs that rely on wholesale access, academics, and consumer groups including OpenMedia – which garnered more than 50,000 signatures for its online "Internet Emergency" campaign around the issue – as well as the Canadian Federation for Independent Business, which argues that small and medium-sized businesses depend on competitive broadband options.

Toronto-based VMedia Inc., a small ISP that also offers television using wholesale Internet access, warned that its business model would be "devastated if Bell's position is granted." With consumers demanding ever-faster services, independent ISPs must be able to respond with a similar level of service "otherwise they will wither and die," the company argued.

VMedia and other independent ISPs such as TekSavvy, Distributel and Primus are currently able to buy wholesale access to earlier-generation "fibre-to-the-node" technology, where fibre runs to the neighbourhood but the "last mile" to customers' homes remains legacy copper telephone wires.

University of Ottawa law professor Michael Geist says BCE's dire warnings about the CRTC policy killing investment have been heard before. "This feels like winter is always coming," he said during a panel discussion at the ISP Summit in Toronto in November. "These arguments have been recycled quite frankly as different kinds of services and different technologies have emerged and each time, it's roughly the same general argument about disincentives to invest. I think over the many years, those haven't proven to be accurate," he said.

On the same panel, Jonathan Daniels, vice-president of regulatory law at Bell Canada, insisted the company is not taking an alarmist position and has never argued that it faces a financial "disaster" if the ruling is upheld. He said BCE's strategy with FTTH investments is to win the whole "broadband home," ideally signing customers up for Internet, television and home phone and being forced to allow competitors access to its fibre-based services would threaten the economics of those investments in small communities.

"Fibre to the home is the most important thing that Canada should be investing in as future infrastructure and we're concerned quite simply that this decision will actually undermine that. That doesn't mean that we're not going to invest, that we're going to stop all fibre to the home, but it creates issues where we have to build at the margins, because it undermines the profitability. So there's a tradeoff here that fewer people are going to get fibre to the home from this decision as a result of that – so we think that that's a mistake."

Federal Innovation Minister Navdeep Bains has until July 22 – one year from the original decision – to vary the CRTC ruling, send it back to the regulator for reconsideration or take no action.