How Competitive is the Canadian Residential
Broadband Market?
A Study of Canadian Internet Service Providers
and Their Regulatory Environment
Catherine Middleton
Annemijn van Gorp
Research conducted in Summer 2009
Ted Rogers School of Management
Ryerson University , Toronto, Ontario
Broadband competition in Canada
• Facilities-based competition
– battle for the broadband home
– cableco vs. telco
– fierce competition
• Services-based competition
– third party access to existing infrastructure
– idea is to increase competition
– local loop unbundling on copper
– TPIA – third party internet access – on cable
Effective
Benefits of ^ Competition
“The fastest connections, lowest prices
and most innovative services are in
areas where there is a range of
consumer choices for broadband.”
What has changed since 2009?
• more use of TPIA (reselling of cable)
– Why? CRTC mandate
• speed matching is required
– but incumbents are explicitly not required to
provide IPTV capacity
• new pricing regime
– but Review & Vary applications in process
What hasn’t changed?
•
•
•
•
Market share of independent ISPs
Lack of innovation among ISP offerings
Pricing
Difficulty of running
small ISP
CRTC data – residential internet
2006
2007
2008
2009
2010
Canadian Radio-television and Telecommunications Commission (2011).
Communications Monitoring Report.
CAGR 06-10
Broadband pricing
Wallsten, S., & Riso, J. (2010). Residential and
Business Broadband Prices Part 2:
International Comparisons. Washington, DC:
Technology Policy Institute.
– “while residential prices have remained
unchanged in the U.S., they have been falling in
most other OECD countries” (p. 2)
Broadband pricing
Organisation for Economic Co-operation and
Development (2011). OECD Communications
Outlook 2011. Paris: OECD.
– “Broadband prices have been continuously
declining over the past decade across the OECD
area, while connection speeds have increased”
(p. 264)
– 2010 data “the average download speed was 36
mbps and the average upload speed 16 mbps.”
(p. 265)
OECD data
September 2009
July 2012
Rogers: 2009
2735 MR. GAUDRAULT: Again, we are actively trying to sell everything we can basically across the country.
2736 COMMISSIONER KATZ: So you were initially selling just DSL.
2737 MR. GAUDRAULT: That's right.
2738 COMMISSIONER KATZ: When you made the decision to upgrade to sell both, what was the -- I don't want to ask you
what the cost was, but what was the magnitude of the decision that you had to take and what were the thought process and
how big a decision was it?
2739 MR. GAUDRAULT: So I guess you guys had a big part to play in it, the uncertainty of that. The fact that we had been
selling 5 megabyte for years without any upgrade, the fact that looking -- after doing the 261 proceeding it became pretty
obvious that at some point people are just going to want faster speeds period. So the sellability of the product became,
"Geez, you know, people are going to start wondering."
2740 So sure enough a 5-meg product is less sellable today than when this proceeding first started a couple of years ago.
2741 So all these things, looking into the future saying, "Wow, if we don't do this we won't have anything viable." They are
not giving us the higher speeds. So all this put together.
2742 And then initially we tried looking at TPIA sooner, but it is really expensive. Like on any one connection the ROI is like
two or three months. It's tough. So it was a big pill to swallow just to start TPIA the way we did and it's either kind of you
have to go big or not go at all with TPIA the way it was set up.
2743 Even now there are a lot of problems with it, just it's tough.
2744 COMMISSIONER KATZ: Did you have to build an overlay network or could you use the infrastructure you had and
simply adapt it?
2745 MR. GAUDRAULT: So we leveraged whatever we could out of whatever we were doing with DSL, but the input rates
just from TPIA themselves were the real barrier. So the gear we had, for sure that helped, there is no doubt you know. So
somebody coming in just to do TPIA, it's no mystery to me why there's not a lot of people selling TPIA already, it just doesn't
make sense. You are shooting yourself in the foot.
2746 COMMISSIONER KATZ: And the costs are competitive for you to buy TPIA relative to DSL?
2747 MR. GAUDRAULT: Well, let's just say I'm banking that this is all going to work out pretty good.
2748 COMMISSIONER KATZ: But today are you paying a premium?
2749 MR. GAUDRAULT: For...?
2750 COMMISSIONER KATZ: For the same throughput on TPIA as for GAS I guess?
2751 MR. GAUDRAULT: So in the access part?
2752 COMMISSIONER KATZ: Total. Per customer. When you sell to a customer -2753 MR. GAUDRAULT: Well, TPIA costs more, but it's hard to compare apples to apples because they are different
speeds. That's the reason we went there.
Slides from 2009 conference presentation
Broadband in Canada
•
•
The cableco “doesn’t even
Who cares?
get out of bed to make an
attempt.
They don’t want
Facilities-based competition
between
ISPs, they don’t want
incumbent cablecos andwholesale
incumbent
telcos,
business”
duopoly
• Open access provisions for cable in place since
1999, uncommon
• Unbundled local loop mandated in 1997
• Is the market competitive? We started talking
to ISPs to find out.
Assumptions about Competition
• The literature and most OECD
governments/policy makers state that the
development of broadband infrastructure
should be driven by competition
• Facilities-based competition (i.e. cable vs. DSL
vs. wireless) is preferred
• Service-based competition (using existing
facilities) is 2nd best, but may encourage
facilities-based competition over time
Benefits of Competition
• Rivalry in pricing and services
• Low barriers to entry for new providers
• Competitors can establish “a reasonably
sustainable market position”
Sustainable market position for
entrants?
Fastest connections?
~6 Mbps, 25th/30 in OECD
Lowest prices?
2008 data
12th most expensive
in OECD
So… Is Competition Working?
• Incumbent telcos argue that the market is
“fiercely competitive”, “vigorous competition”
• Starting to see some higher speed services in
the big cities
• There hasn’t been much competition on
prices and speeds. This may be changing,
but…
– FB competition on ‘soft’ aspects, e.g. bundling,
add-ons
– Throttling is an issue, also download caps
“I don’t know how competitive I could even say
it is today. If you look back in the dial-up days,
the independent ISPs made up a very large
chunk of the competitive market. It was
actually independent ISPs that started dial-up
Internet. The ILECs came later to that market.
So at one time there were many, many, many
players in that broadband access market. Now
it’s almost primarily the cable companies and
the phone companies.”
What about
Local Loop Unbundling?
What we need to know is “how
effective was the unbundling and
what were the outcomes?”
(Taylor Reynolds, OECD)
“I might as well have been selling washers and dryers.
There are endless things I should have done instead of
being an ISP, really there are just a few of us left.”
Degrees of Unbundling
• Resale (‘white label’ DSL, ‘rebilling’)
• Wholesale aggregated DSL (not quite
bitstream)
• Line sharing (incumbent still provides voice)
• Full unbundling
• Ladder of investment suggests that market
entrants will increase investment in their own
facilities over time, but…
Issues of Concern to Independents
Wholesale DSL may be subject to:
• Traffic shaping practices Limited possibilities for
differentiation of
• Usage-based billing
services, reduced
• Speed restrictions
choice for consumers
BUT: these would not be problematic if the
independents co-located and used their own
equipment
• No statistics available, but we believe colocation is not very common
Much Uncertainty for Independents
• To date, market entrants have had little
traction with the regulator
• Several hearings regarding the wholesale
broadband market underway or upcoming
• Independents are now seeking public support
for fight against incumbent wholesale
practices
http://www.competitivebroadband.com
ISP Ideas for Improving the
Situation
• Broadband has ‘fallen off’ the government
agenda in Canada, needs attention again
• Effective regulation of wholesale broadband is
essential, improve accessibility to regulator for
non-incumbents
• Structural/functional separation
• Reduced regulation (let the incumbents and
independents figure it out on their own)
Conclusions and Questions
• LLU is not a yes/no proposition, need to
understand how it works, level of control
• Is there a future for the independent ISP in
Canada? Should there be?
• What should the regulator be doing to ensure
competition? (part of its mandate)
• What about transitioning to Next Generation
Networks? What is needed to ensure
competition for higher speed networks?