January 31, 2011

Usage Based Billing. The Good, The Bad and The Ugly.

Usage Based Billing (UBB) is a new pricing regulation that was passed by the Canadian Radio-television Telecommunications Commission. There's a lot of anger regarding this new bill and I'm going to try and break down the arguments of all three parties (CRTC, ISPs, Consumers) into the good, the bad and the ugly.

Before the Bill
Canada's Internet Service Providers are broken up into Incumbent Local Exchange Carriers (ILEC) and Competitive Local Exchange Carriers (CLEC). Essentially an ILEC is the monopoly telecommunications company that built the infrastructure in an area, say, Bell, Rogers, Shaw and SaskTel; on the other hand you have a CLEC that will buy access to an ILEC's network, without having to worry about installing any expensive hardware, such as lines directly to a home, or trenching fibre, because all of that infrastructure is provided by the ILEC - this is called Gateway Access System (GAS). Thanks to the CRTC ILECs are forced to provide CLECs with access to the infrastructure to encourage competition.

What the Bill Wants
The UBB bill gives the ILECs the right to charge their customers, including CLECs, for the amount of data used, instead of giving unlimited access to the ILEC's infrastructure. The bill also dictates that an ILEC must give a 15% discount to CLEC for the per GB overage rate.

The Good
ILECs have a massive infrastructure they need to manage and pay for. CLECs on the other hand have a minor subset of said infrastructure and have a lot less cost. They paid a flatrate to their ILEC per customer they served. In turn that customer got unlimited access at a given speed. UBB changes that agreement so that the ILEC can charge a customer for the bandwidth they use. There seems to be a lot of problems regarding this, but this charge makes perfect sense. An infrastructure, that obviously has been oversold, needs to be maintained (hopefully expanded), which costs a lot of money. Charging people for the amount they use is only fair. Nobody expects to buy a car and expect the manufacturer to pay for gas.

The Bad
UBB is expensive. The "normal" overage rate on a 60GB/m transfer is $2.50/GB. So, a customer that pays $39.99/m for 60GB may transfer 70GB - their bill will show the base cost of the connection plus 10GB at $2.50/GB, so an additional $25. That's a bit steep. I strongly believe that if UBB was a reasonable rate, lower than $0.50/GB, nobody would be complaining.

The Ugly
What is really disgusting is that, especially, Bell is lowering these caps to such low, low figures that it's almost impossible to not go over - only solution: buy a bigger package... for more money. These low figures are an obvious money grab. Interestingly UBB become a big issue for ILECs that offer TV services as well (Shaw, Rogers, Bell, Telus) shortly after new streaming services were introduced to Canada. These services include Netflix, Apple's TV/Movie Rentals, Sony's PSNetwork movies and more. Considering that a Netflix movie of 1.5 hours in length probably streams around 800MB in standard definition one can see that bandwidth usage will rise with increased consumption of unlimited movie services.

By introducing low bandwidth caps, ILECs are essentially eliminating rich media (video, music) from a user's browsing habits and ensuring that customers continue to subscribe to their TV package. Think of it as a really messed up customer retention strategy. (Messed up for the consumer, brilliant for the company)

The UBB ruling by the CRTC is only fair. Wholesale customers on ILECs should be paying for usage of an expensive infrastructure. Sadly, passing that cost off to the customer, and stifling usage by ridiculously low caps will hurt Canadian Internet use (and wallets) in the long run. I would have no problem with an overage rate on my ISP if the rate were set at a reasonable rate.


  1. Hm, I don't think I agree with your optimism. If I compare plans for internet and mobile phones, Canada has ridiculous rates already. The only reason Canada is behind the rest of the world regarding technology, is because of silly rates.
    Where you pay $40 (or so, converted from Euro's) for unlimited (and really fast) internet, Phone and TV, we're paying that just to own a phone-line.
    Cell phone plans with unlimited data (fair use) and SMS + 210 calling minutes (long distance included) are only $45 (example from KPN.com, a Dutch phone giant). There's no way that's going to happen in Canada any time soo, especially with this stupid UBB.
    I do have to add they cap bandwidth on mobile phones, to preserve load on the network, which to makes a LOT more sense than letting us pay for overage.

    Canada needs to look outside their own little big world and learn..

  2. Thanks Joey. I've been arguing with people that UBB is a valid business model, it's the set price that the ILECs are going to use that is the scary part. I'm glad I'm not the only person that sees it this way.

    I think that the CRTC needs to regulate the price in the same way that gas, electric and water prices are regulate prices such that consumers are protected.

    It's also refreshing for someone to remind us that the CRTC is actually trying to be on the consumer side with rule that demand fairness to competitors are a reasonable rate.

  3. Wow. You can actually afford broadband, tv and phone for about 10-15 euros, and the quality is pretty good. What is going on in Canada? :o

    Cheap international calls