I don’t think that the Government realizes exactly how much trouble the recent Canadian Radio-television and Telecommunications Commission decision is going to cause. I don’t think that the CRTC understood what they were doing. And I don’t think that Bell and Rogers realize how badly this is going to backfire on them.
For those who haven’t heard, the CRTC has granted Bell Canada the right to bill other Internet Service Providers using the Bell Network based on data transfer levels. Bell was already billing consumers who deal directly with them in this manner. Rogers also bills consumers who deal directly with them in this manner. So what’s the big deal?
First you have to understand how a network works, and then you can see.
OK, so you are going to set up a network. First, you lay cables. Then you hook the cables up to the router. Then you hook the other end of the cables up to the computer. Then you turn on the router.
Sounds like I’m talking about your home network, right? Believe it or not it’s the same thing. Once the network is up and running, your costs are minimal. How much does it cost Bell or Rogers? Believe it or not, the biggest expense is probably the billing department. Seriously.
So why are Bell and Rogers pushing so hard to bill by the byte? It’s the money, honey. Your money. That they want. And that they’ve convinced the CRTC to give them, they think.
Problem is, a lot of people are going to look into dumping their Internet connections. They won’t be able to afford them, and instead of surfing the net at home, they’ll be spending more time at Starbucks, or the local library.
So traffic will drop. And earnings will drop. Which means that Bell and Rogers will up the prices again, which will cause their earnings to drop again. This is called a feedback loop. Classic economic theory, which everyone except corporate Chief Executive Officers understands.
And of course Canadians are going to complain to their politicians. I’ve heard of a couple of proposals for towns to build out their own Internet Access Infrastructure, to bypass Rogers and Bell. No doubt the CRTC wouldn’t like this, however it’s hard to see how they could block it. After all, the CRTC has publicly stated that they want competition, and that’s what town supplied internet access would be. Bell and Rogers have boasted about how efficient they are, surely they can compete with inefficient government!
And the CRTC will be under immense pressure to do this. After all, if the towns build their own infrastructure they should be able to charge what they want. They won’t be using the infrastructure that Rogers and Bell have built. Of course Bell and Rogers don’t want to compete. Remember last year when Canada was auctioning off public radio spectrum for phones? Rogers and Bell were adamant that more competition wasn’t needed. Curiously the second there was further competition, their prices dropped.
The next few months should be fascinating. If there is a spring election, Usage Based Billing could have a huge impact. If there isn’t a spring election, I expect to see a huge move to municipal Internet.
Rogers and Bell have shot themselves in the foot this time.
Saturday January 29, 2011