Wholesale service providers and the CRTC

By Les Routledge, Research Associate, Frontier Centre for Public Policy Canada's major telecommunications firms – Bell, Rogers and Telus, among others - want to create a system that would enable them to control both their retail competition and the quality of the internet services we receive.

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Their control would come through their attempts to “throttle” internet traffic by employing traffic management techniques that can identify and slow down certain forms of web activity, most notably peer-to-peer (P2P) data transfer software used to distribute large files, such as videos. The firms argue that these activities congest download times – in effect creating a traffic jam - for everyone. The Canadian Radio-television and Telecommunications Commission (CRTC) is currently holding a hearing into the firms' internet throttling practices. Its decision could shape the competitive landscape in the telecom world for years to come and will affect the quality of service offered to all internet users. While there is a need for network control, there are three arguments against given the role of gatekeeper to the major telecoms: 1) The traffic management function should occur at the retail level, where the impact of congestion is visible to the user and can be easily priced into the service. 2) Managing traffic at the wholesale level facilitates cross-subsidization or other anti-competitive action. Their preferred method of controlling traffic would be less problematic if they were not also in the business of operating retail services. While the concern today is about P2P applications, will the concern migrate towards IP telephony services such as Skype or emerging application services that operate over the internet? Are they employing the traffic management concerns today as a means to maintain the competitive position of their retail “walled garden” services - a browsing environment that provides a means of controlling the information and websites a user is able to access - in the future? 3) There is a further argument that the big telecoms could simply increase their capacity to handle the increased traffic load, especially as, according to some observers, new technologies make this option less expensive. To understand the implications of a wholesaler/retailer controlling internet traffic, let's look at the issue from a prairie farmer's perspective. What would happen if both CN and CP Rail, which operate grain transportation services, also owned an elevator company and an ocean terminal company? What if they were to adopt a policy that meant any grain shipped by other grain elevators or delivered to any competitive terminal might arrive one day, or even ten days, late? The result would be the death of a competitive environment. In Australian, the government is considering requiring telecom companiesto decide whether they are in the wholesale or retail business and divest themselves of one or the other part of their operations. In Canada, for example, that would mean that Bell, if it wants the right to manage the traffic on their wholesale network, would be forced to divest their retail operations such as ExpressView, internet access and Internet Protocol Television (IPTV) services (as well as business audio and video conferencing business services). If the CRTC were to take this action, it would effectively be requiring that “wholesale” services become “retail” services, thereby structurally preventing anti-competitive action. The CRTC needs to be very careful before permitting a wholesale service provider to discriminate against different types of traffic. It needs to look beyond the current concern about P2P applications and explore how the concept of traffic management will apply in the future as more software and applications migrate to a network-based model of operation. It also needs to ask critical questions about how traffic management policies affect competition at the retail level and how innovations can or cannot be adopted by competing retail service providers. Les Routledge has 20 years of experience in the telecom industry including long distance, cellular, Internet television/radio broadcasting, and television delivery services.

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