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Small ISPs lament CRTC fee change, look to invest in own infrastructure

Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail

Small Internet service providers in Canada are being forced to innovate and invest in network infrastructure as the regulatory environment shifts dramatically in ways that are blowing apart the status quo.

A series of harsh decisions from the federal regulator will raise - and in some cases double - the cost charged to small, competitive ISPs, which tap into the networks of incumbent providers such as Bell Canada. That means business models, some of which were designed around offering unlimited data plans for Internet customers, are being revisited and revised, with some costs being passed along to customers.

But at the same time, as drawn-out issues are resolved, small ISPs have a much clearer picture of what it will take to compete in the market.

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Many of these companies are now looking to own more network architecture, breaking away from the practice of leasing space on others' networks to begin innovating in ways that could directly, and positively, affect hundreds of thousands of Canadian consumers. This would include - though not be limited to - the use of unlimited data plans in an era where online video services such as Netflix are gaining popularity and large telecom providers are looking to impose stricter download limits.

"It hopefully will result in more real choices for consumers, because the ISPs are going to have to be more aggressive and innovative," says Mark Goldberg, a telecom consultant based in Toronto.

On Wednesday, the Canadian Radio-television and Telecommunications Commission issued a decision that raised the costs charged to small ISPs that try and ride on the networks of Bell and Bell Aliant, mainly in Ontario and Quebec. The regulator has also recently issued decrees that allowed large incumbents to shape ISPs' network traffic and also to begin charging "usage-based billing," forcing so-called resellers that sold popular unlimited packages to start introducing caps and charging more for bandwidth.

Andrew Day, the chief executive officer of Primus Telecommunications Canada Inc. , says that, taken together, the CRTC's recent decisions provide a clear view of the future, including what it would cost to own and compete over more of its own facilities; in short, becoming what is known in the industry as a "facilities-based" competitor that owns its own network, such as Bell or Rogers Communications Inc. "It gives clarity to competitors on how to make investments going forward," says Mr. Day. "You now have perfect information to put forward a facilities-based business case."

Executives of small ISPs say they have a clear incentive to innovate on services, but the price rises this week were still a bitter regulatory defeat that Mr. Day says they plan to appeal.

The fees changed on Wednesday apply to wires that run from residences or businesses to switching centres run by local incumbents, such as Bell. Many independent "resellers" who offered unlimited plans, such as TekSavvy Solutions Inc., used both the wires and the network equipment in these centres.

For Primus, however, the majority of its clients' information runs through facilities in which it has installed and owns some of the equipment - making these facilities a so-called "co-location." In areas close to these network centres, which can cost as much as $150,000 to set up and much more to maintain, it is still possible to offer unlimited plans, since it is the independent ISP that is processing the data, Mr. Day says. Although the company has raised prices and introduced caps on some Internet plans, the areas around these facilities - which includes many Canadian cities, such as Toronto, Montreal, Ottawa, Kingston, and others - are still able to buy an unlimited bandwidth plan.

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"If you went down the co-locate path, there is a price point where you could have an unlimited bandwidth (offering)," Mr. Day says, adding that companies like his will be forced to innovate on a number of value-added services to differentiate their service, such as blocking all telemarketing calls, which the company already does.

But for other companies that don't already have the majority of their customers in such areas, the fee raises on Wednesday still managed to inject a measure of long term certainty into an industry where obscure regulatory changes can have far-ranging implications, not just for telecom providers' executives but for the consumers who receive the services.

"At the end of the day, this does have a bit of a silver lining," says Rocky Gaudrault, the chief executive officer of Chatham, Ont.-based TekSavvy, who says he is pursuing a strategy whereby his company would own more of its own infrastructure.

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