Karl’s Blog

03 Feb 11 CRTC Approved Internet Usage Based Billing in Canada

A friend of mine wrote on his facebook page “I don’t understand what is so fundamentally appalling about usage based billing that the Canadian Government would step in to overturn the CRTC decision.”

This got me to thinking about the issue because I am disgusted with the CRTC’s decision but I don’t think there is anything fundamentally wrong with usage based billing.  I mean it works for other things like electricity, natural gas, water and pretty much anything you can by on the free market.  So what is so appalling?

For me I think my objection is with the CRTC directly.  This is another example of the CRTC using its power to protect Canadian markets and make them more lucrative for the select companies capable of operating within our borders with little regard for how this impacts each Canadian.  The recent sale of wireless spectrum in Canada was supposed to increase competition and result in lower cost of wireless communication in Canada.  Today Canadians are still paying too much, compare your plan with that of the average American or European.  Now with this decision are we to believe the average Canadian will pay less for internet.

The normal forces that are meant to control price relies on the conflict between supply and demand.  In a free and open market supply gets created by existing suppliers creating more product or new entrants.  The high infrastructure costs and ownership requirements effectively closes the Canadian market to new entrants.  Since price is inversely proportional to supply and new entrants are highly unlikely it is in the best interest of the large communications companies to slowly introduce supply at a pace that does not cause civil unrest.  Choice is even further limited because the major providers have colluded and geographically divided the country.

The demand side of the equation is simple, it is going to increase.  I’ve been using internet since it was first made available in my neighborhood, if memory serves this was 1995.  I know my own personal experience has been of increase internet use year over year to the point now where I personally consider it a part of my critical infrastructure; like heat, water, electricity, etc.  I have also witnessed increased dependence on it in my job, at education facilities and in my personal life.  I believe my personal experience is consistent with the global trend and I hope it continues into the future.

What does this mean.  Moderate increases to supply + increasing demand = higher price.

One could argue that the conditions that I’m complaining about exist within other industries like electricity and natural gas distribution in Canada.  I would agree but I believe there is one critical difference, the price is regulated both in terms of the per unit cost of the resource and the administrative costs that may be added to the bill.  With a regulated price there is one way for a company to fullfil its desire to make more money, get more customers.  The factors that would drive customers to one provider over the other would be quality things like: uptime, bandwidth, quality of service, etc.  So with a regulated price we should see internet providers that are more reliable, provide better service and like electricity providers the companies would continue to earn revenue.

The solutions I’ve considered are:

  1. Create a government regulatory body to regulate (supply and price) the industry like is done for Electricity, Gas, and the like.  Could expand the responsibilities of the CRTC but I think the organization is relatively ineffective at protecting the consumers interest.
  2. Create a publicly funded communications corporation to provide the minimum standard communication infrastructure.  It would be up to private industry to invent compelling reasons for individuals to use there service.
  3. Disband the CRTC and open our markets to global investment