Canada Rebuff of BCE Over Internet Billing Paves Way for Netflix to Expand
Industry Minister Tony Clement has rebuffed efforts by Canada’s largest cable and phone companies such as BCE Inc. to impose per-use billing on Internet service providers, assuaging concerns that consumer costs could rise and paving the way for firms such as Netflix Inc. to keep expanding.
Clement said yesterday he would overrule last month’s decision by the Ottawa-based Canadian Radio-television and Telecommunications Commission that would have forced usage-based billing on smaller Internet service providers, which use the networks of companies such as Rogers Communications Inc. and Shaw Communications Inc. The regulator’s decision may have made it uneconomical for the providers to offer packages with no limits on Internet access to some customers.
Growing opposition to usage-based billing coincided with the September entrance of Netflix into the Canadian market. Netflix, based in Los Gatos, California, began offering a package that let customers download unlimited movies for about C$8.00 ($8.00) a month. Charging customers for the amount of bandwidth they use would have generated “hidden costs” for such services, said Michael Geist, a law professor at the University of Ottawa who specializes in Internet issues.
“It doesn’t take long before you hit your cap and you are effectively paying extra to download these movies,” Geist said. “There’s a lot of people out there who believe that this is really all about Netflix” and other Internet video providers.
Competing Directly
Major Canadian phone companies offer their own movie download services through cable or satellite television, competing directly with Netflix’s Internet service. BCE and other major telecom companies already have usage-based billing for their Internet customers, and sought to impose the same pricing system on service providers such as such Primus and TekSavvy who buy bandwidth on their networks.
The CRTC ruled Jan. 25 that the phone and cable companies could charge Internet service providers using the same per-use formula as their own retail customers, with a 15 percent discount.
“Under a Conservative government, this ruling will not be implemented,” Clement told reporters yesterday in Ottawa. The regulator has to work “within the policies and programs that have been enunciated by the government,” he said.
Clement’s comments came minutes after CRTC Chairman Konrad von Finckenstein told lawmakers in parliamentary testimony he would review his own decision amid growing opposition from Internet advocacy groups and all four of the country’s main political parties, including the governing Conservatives.
Threatened Expansion
While Netflix’s current growth in Canada outpaces that in the U.S., the imposition of per-use billing threatened to slow the expansion, said Chief Executive Officer Reed Hastings.
Usage-based billing is something “we’re definitely worried about,” Hastings said on a conference call with analysts last week. He said Canadians who have Internet service with download limits may not understand how their plans work and their reaction after receiving a couple of bills “ is potentially a significant negative for Netflix.”
About 550,000, or 6 percent, of the households that subscribe to high-speed Internet in Canada do so through small providers, von Finckenstein said in his testimony yesterday, where he defended his decision.
Usage-based billing is “a question of fundamental fairness,” he told the House of Commons industry committee. “Ordinary users should not be forced to subsidize heavy users.”
‘Eager to Participate’
Mark Langton, a spokesman for BCE, said the company is “eager to participate in the process,” adding “our overall position remains the same -- the very heaviest users should not be subsidized by other Internet customers.”
Rogers will participate in the CRTC review of usage-based billing, company spokeswoman Jan Innes said, declining to comment further.
Sales of Internet services account for C$6.6 billion ($6.6 billion) of the country’s C$41 billion telecommunications industry, according to the regulator’s latest available data.
The Canadian Network Operators Consortium Inc., which represents small Internet providers, wrote to Clement on Feb. 1 asking the government to have the regulator reconsider its decision.
The group said the ruling would “unduly reduce competition in the provision of retail services and harm Canadian consumers, culture and the economy.”
To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net
To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net
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