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Posted at 8:00 AM ET, 02/ 7/2011

Canada rethinks metered Internet, as U.S. pushes ahead

By Cecilia Kang

As U.S. Internet service providers move to metered plans with the blessing of federal regulators, the Canadian government is reconsidering its own controversial rules that allow for usage based billing instead of flat fees.

Canada's decision could determine the success of Internet video providers such as Netflix, YouTube, Hulu and Vimeo there, consumer groups say. Depending on where caps are set and how much is charged for going over, viewers may be reluctant to get their bandwidth gobbling video entertainment and news from the Internet, they say.

In the U.S., analysts say the same scenario can play out. So far, Comcast has a 250 gigabyte cap for broadband, which basically allows for unlimited video viewing. But other broadband providers have long eyed caps that may not be as generous and the Federal Communications Commission's net neutrality rules opened the door for such practices.

Verizon Wireless said last week it would periodically slow down videos for the biggest data users of its unlimted plans, those in the top 5 percent. T-Mobile does the same, slowing down service when users get near their limits. AT&T moved toward tiered pricing this year for new smart phone customers; Sprint Nextel still offers unlimited data plans.

But the movement of Internet providers toward usaged based models puts cable competitors such as Apple's iTunes, Amazon, and Netflix at a potential disadvantage, analysts say.

Opponents of the caps say the solution to costs imposed by the heaviest users is to open up the market for more competition.

"The widespread use of bandwidth caps in Canada is a function of a highly concentrated market where a handful of ISPs control so much of the market," wrote Michael Geist, a professor of law at the University of Ottawa and research chair in Internet law and e-commerce in Sunday column in the Toronto Star.

Canadian Radio-television and Telecommunications Commission, the equivant of the Federal Communications Commission in Canada, said last week it would delay a rule that would effectively allow ISPs to charge users by how much data they consume by metering wholesale costs to smaller ISPs.

The rule was supposed to go into effect on March 1, but then a firestorm of consumer protests led ISPs to reconsider. Canadian officials took to Twitter to express their views with Prime Minister Stephen Harper saying he was concerned about the rule and would ask for a review. Canadian Industry Minister Tony Clement wrote on Twitter that he would reverse the decision.

@TonyClement_MP: I remain very concerned by the #UBB decision of the CRTC & look forward to my review being completed ASAP.

Public interest group collected hundreds of thousands of signatures on an online petition called Stop the Meter. It's also raised consumer support through a Facebook page with more than 50,000 fans.

The CRTC said usage-based billing was made sense because as small portion of heavy users appeared to raise network costs for all.

But that practice could stop consumers from trying new services, according to a study by Credit Suisse. In January, a group of Credit Suisse analysts concluded Netflix use in Canada with new data caps would likely move those viewers to higher tiers, adding about $12 to those consumers bills, according to reports.

In an earnings conference call with analysts, Netflix CEO Reed Hastings said the Canada metered billing decision could have an adverse affect on the company, which is trying to grow its business there and globally.

And in a letter to shareholders last month, Netflix warned of the risk of U.S. ISPs switching from usage-based pricing models from flat fees.

"We hope this doesn’t happen, and will do what we can to promote the unlimited-up-to-a-large-cap model," Hastings wrote. "Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber. The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary."

By Cecilia Kang  | February 7, 2011; 8:00 AM ET
Categories:  AT&T, Broadband, Comcast, FCC, Google, Internet TV, Net Neutrality, Online Video, Verizon  
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Usage-based pricing and terms like "last mile" miss the point of the Internet as basic infrastructure and instead force it into the mold of another television channel or content delivery network. You don't consume bits like you consume electricity.

For more, and more detailed writings.

Posted by: BobFrankston | February 7, 2011 10:05 AM | Report abuse

Please note that Tony Clement is the Industry Minister, not the Trade Minister.

And the CRTC is reviewing their decision to effectively stop no-strings-attached volume wholesale selling of bandwidth because Clement and Harper pressured them to do so.

The CRTC decision meant that small ISPs couldn't buy bandwidth in bulk, effectively preventing them from selling other than by the same UBB model used by the bandwidth providers.

Posted by: hackattack22 | February 7, 2011 10:30 AM | Report abuse

I'm assessing my cable bills and looking @ internet options. Technology is moving forward. There is standard online access, bridging equipment such as blue ray players bundled with wifi packages and fully loaded internet televisions. The driving forces are the youth who skip cable subscription all together. The push back is coming from the less nimble cable providers slow to move working with infrastructure more than two decades old; protecting market share through lobbying & consumer restriction. Why would one wish to pay 9.99 for a single rental when a monthly unlimited subscription is comparable? The cable providers while trying to keep up seem as though they are providing less while asking consumers for more. Like news they need to create better working models in order keep customer base. People get tired of paying more for less.

Posted by: lighthouses7 | February 7, 2011 11:02 AM | Report abuse

usage based pricing is nothing new to those that use VSAT or satellite internet. There are many internet users that rely on Hughes or StarBand (or others) to get connectivity in places that phones (hard-wired or cell) are a dream.

My StarBand service has a limit of 2Gb download over a moving 7 day window and 390.6Mb upload in the same 7 day window. On the other hand I and many people are able to connect to the internet in remote places where even dial-up is questionable, remote farms, ranches or RV camp sites. Not all towns have the connectivity people think is normal. For example, San Juan County Colorado has one small microwave connection to the "outside" world. That link handles all phone calls, cell phones, credit card charges and internet - including all city and County data requirements, the library, school and most personal internet access. During periods of peak usage, businesses can't make credit card charges and websites time out. Except after midnight, no one even thinks about downloading a movie.

Posted by: Ag2000CO | February 7, 2011 11:19 AM | Report abuse

Being at the forefront of this battle and having won it on behalf of Time Warner Cable subscribers who fought a similar pricing experiment in 2009, let me make this completely clear -- any effort to engage in these Internet Overcharging schemes on a grand scale on wired broadband networks will cause a consumer backlash of similar size and scope to what is happening in Canada today.

Consumers DO NOT want this fake "usage-based billing" which doesn't charge for what one uses -- it sets a usage allowance and then punishes consumers with overlimit fees that are totally unjustified. In Rochester, N.Y., Time Warner proposed TRIPLING broadband prices to $150 a month for unlimited service. Sound like a good deal?

Our fight continues at

Phillip Dampier
Editor, Stop the Cap!

Posted by: dampier | February 7, 2011 11:09 PM | Report abuse

My problem with usage fees is that in most areas you have 1 or 2 choices for broadband service. For me, in a major city, I can choose Qwest or Comcast. With that sort of Oligarchy we do need consumer protections with pricing.

Ideally, we would have many many many services available and then the market would price itself appropriately.

Posted by: BradG | February 10, 2011 6:28 PM | Report abuse

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