BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

Transcription

1 BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION TELECOM PUBLIC NOTICE CRTC , Review of billing practices for wholesale residential highspeed access services Opening Statement of Bell Aliant Regional Communications, Limited Partnership and Bell Canada 11 July 2011

2 Mirko Bibic Introduction 1. Thank you Madame Secretary, Mr. Chairman and Commissioners. I am Mirko Bibic, Senior Vice President, Regulatory and Government Affairs, BCE. I am pleased to introduce our panel appearing on behalf of Bell Aliant and Bell Canada. 2. Joining me today are: to my immediate left, Tom Little, Executive Vice-President and President of Bell Wholesale; to my immediate right, Jonathan Daniels, Vice- President, Regulatory Law; and to his right, Carl Condon, Vice-President Network Technology and Planning. 3. Earlier this year, we withdrew our usage-based billing (UBB) tariff and filed in this proceeding our Aggregated Volume Pricing (AVP) proposal. AVP is designed to ensure an adequate return on our network investments; to create incentives to limit congestion; and to allow our wholesale ISPs to differentiate their product offerings. The goal is to ensure that Canadians continue to have access to the most modern, best performing and most highly used Internet networks in the world. 4. We know that you, as well as the participants in this room, share that same goal. Some of us just differ on how best to achieve it and, even then, the differences have narrowed. At this point, almost all parties acknowledge that wholesale pricing for Internet services should have a usage-based component. The question is no longer whether economic Internet Traffic Management Practices (ITMPs) are appropriate at all for wholesale services, but how economic ITMPs should be implemented.

3 In this Opening Statement we specifically answer the questions that the Commission asked. Given the high profile and sometimes controversial nature of this debate, we also provide some context and additional information to assist the Commission in understanding why we developed the AVP proposal. 6. This hearing could not come soon enough, as we are at a significant disadvantage in the marketplace. We are not able to charge for usage to our wholesale ISP customers, even though: a. The retail Internet market has had economic ITMPs in place for several years in our case, since What's more, many wholesale ISPs making use of our Gateway Access Service (GAS) service have implemented retail UBB even though we do not currently charge them for usage of the shared network; b. Cable carriers have had the regulatory authority to implement wholesale UBB for over a decade, and have done so in our operating territory, at both the wholesale and retail levels; and c. We have been ordered to launch FTTN matching speeds without usage pricing, allowing wholesale ISPs to market their services with unlimited plans, but without having to pay for usage. 7. For all of these reasons, we urge the Commission to issue its decision as quickly as possible.

4 This hearing is also a welcome opportunity to set the record straight on a number of key facts, given that the public campaign against our original UBB tariff was characterized by harmful misinformation. 9. One myth is that there is no evidence of network congestion. This is completely false. Over the past three years, we provided detailed evidence showing how congestion is measured on our network, and the actual levels of congestion. We continue to make massive investments every year to relieve that congestion. 10. A second myth is that wholesale ISPs are not significant contributors to congestion. Wholesale ISPs serve 17% of end-users and drive 29% of total traffic on our network in Ontario and Québec. This is significant. No single user or wholesale customer is the cause of congestion. But, clearly, wholesale users contribute a disproportionate share of total traffic, and by extension, congestion. 11. A third myth is that IPTV contributes to congestion on the shared network. Our Fibe TV product is not "Internet" TV and does not transit over the shared network like an over-the-top video service. Rather, IPTV operates over a separate network. The only place where IPTV shares capacity is in the "last mile", where congestion is not an issue. 12. As I mentioned at the outset, almost all parties agree that wholesale pricing should have a usage-based component. That is exactly what we have proposed in this proceeding. Under AVP, wholesale Internet pricing, for both legacy GAS and GAS- FTTN, comprises two components: (1) a flat-rated access fee by speed and (2) the

5 - 4 - AVP. The AVP can be pre-purchased in blocks of single terabytes for $200 per terabyte. Should the ISP's actual usage of the network exceed what the ISP purchased for the month, the ISP will be charged $0.295 per GB for any extra GB needed to accommodate the overall usage of all its end-users in that month. In answer to the Commission's first question, we continue to believe that AVP is the billing model the Commission should approve. 13. We also wish to outline certain key principles we believe the Commission should use in evaluating the alternative billing models, and which guided us in developing AVP. They are: Flexibility: The economic ITMP must not be linked to individual user thresholds and should allow each ISP to devise its own business models that allow it to differentiate itself; Fairness: The economic ITMP must ensure that those who use the most pay the most and are not subsidized by those who use the least; Predictability: The economic ITMP should be designed to ensure that ISPs have an incentive to manage usage of the shared network; and Promoting investments: The economic ITMP must be designed to incent investments in building and augmenting access networks. 14. I will now turn to Tom.

6 - 5 - Thomas Little 15. Thank you Mirko and good morning Commissioners. I am the person at Bell responsible for working with wholesale customers, and I manage a significant portfolio of both regulated and forborne services. I can assure you that my wholesale GAS customers are an important and valuable segment of our wholesale business and we seek to supply them with the best possible services. We have demonstrated our commitment to them by offering value-added options on GAS without being mandated by the Commission to do so. We have offered optional installation on our legacy GAS; the optional provision of ADSL2+ modems; and promotions such as waiving dry loop charges and offering incentives to encourage subscriber growth. 16. We have also tried in earnest to engage wholesale GAS customers in commercial discussions, but it is hard to develop meaningful commercial partnerships when the regulatory arena is an alternative to negotiations. 17. A key strategic imperative at Bell is to invest in our broadband networks. We must keep pace with the cable companies, the Internet market share leaders, which for us alone involves investments totaling billions of dollars. 18. The business case for these investments is strained. Last year - and again this year - Bell Canada's capital expenditures on Internet exceeded the Company's total Internet revenues. That's a capital intensity ratio exceeding 100%, whereas BCE's overall capital intensity ratio and that of the telecommunications industry in general

7 - 6 - is closer to 16%. On top of that, revenues and subscribers have remained relatively flat, while network traffic growth and user expectations have exploded. 19. There is nothing inherently wrong with those investment requirements, but the model for recovering those costs is broken. The solution is to ensure that those who use the most pay the most. This just makes economic sense. Our AVP proposal is the best means of achieving that objective. It is a reasonable and feasible approach to wholesale billing. 20. I now turn to Jonathan. Jonathan Daniels Question Number 1: Which of the billing models proposed by interveners should the Commission adopt? 21. Before you are two competing models for levying a wholesale usage charge: one based on total traffic volume; the other based on peak period usage. Our AVP proposal (similar to the cablecos' model) is based on total traffic volume: specifically, it would bill ISPs based on the total volume of Internet traffic their end-users send and receive in a given month. By contrast, CNOC's "95 th percentile" model is based on peak traffic. CNOC proposes that snapshots of an ISP's network usage be taken on a sample basis to determine its peak. The 95 th percentile measurement is then used to bill the ISP for its peak traffic throughput.

8 As an economic ITMP, AVP is clearly superior to 95 th percentile. AVP measures all usage across the shared network, recognizing that congestion can occur anywhere, and closely tracks usage with pricing. It meets the four principles outlined by Mirko a few moments ago. It ensures that incumbents receive an appropriate return on their investments in building networks and relieving congestion; and it sends the right economic signals to wholesale users by incenting them to manage their networks in a manner that diminishes congestion. 23. In contrast, 95 th percentile has serious limitations, including the following: Congestion 24. First, 95 th percentile does not provide proper incentives to reduce network congestion over the shared network. Rather, it provides an incentive for wholesale ISPs to maximize their usage to their 95 th peak percentile. Let me explain why I say that by asking you turn to Figure 1 in the Attachment to our Opening Statement. 25. The aggregation portion of our networks, where we face congestion, is shared. Traffic cannot be distinguished between wholesale and retail users at that part of our networks. This is important in evaluating the two models. 95 th percentile only measures traffic - and, by extension, congestion - where the ISP connects to our network (the AHSSPI, as illustrated in Figure 1). But here, we are concerned about congestion in the aggregation network, not just at the wholesale ISP's point-of-interconnection.

9 The peak at the point-of-interconnection is not necessarily the same as across the shared network. It is practically impossible for all network components of the shared network to all be congested at the exact same moment in time. Although 95 th percentile would bill to a certain peak at the ISP point-of-interconnection, it would do nothing to reduce congestion anywhere else in the network. 27. To further illustrate, I would ask you to turn to Figure 2. It shows that two different wholesale ISPs could have the same 95 th percentile throughput but have completely different usage patterns, and hence markedly different impacts on our networks. ISP #1, in the chart on the left, has a traffic pattern that peaks during prime time hours and then drops off in the early hours of the morning. ISP #2 maintains a fairly constant throughput throughout the day. If we assume these usage patterns repeat throughout the month, the total volume of data sent on the shared network is very different for the two ISPs. As you can see in the chart on the right, ISP #1 would only generate 93 terabytes of data, as compared with the 151 terabytes that ISP #2 would generate. That is a 39% difference in total network usage, yet both ISPs would have the same usage costs based on 95 th percentile billing. 28. With 95 th percentile, an ISP may have the incentive to reduce its peak usage, but once it reduces that to a level it finds acceptable, it has no incentive to reduce its overall usage below that level at any other time of day even though that ISP may be contributing to congestion on our network at those other times. That is not fair, nor is it effective as an ITMP.

10 In contrast, since AVP is based on total traffic volume in a given month, which transits through all network components, it does provide an incentive to wholesale ISPs to manage their overall usage across all network components. Bell Implementation Issues 30. Second, it is no secret that we already use 95 th percentile billing for a limited set of other services. However, the existing 95 th percentile solution was developed assuming there would be few customers for those services. It is not robust enough to handle the number of wholesale GAS customers we have. Adopting 95 th percentile to bill for wholesale GAS usage would cause significant implementation issues, as outlined in response to a request for information 1. For instance, we would not technically be able to measure the 95 th percentile peak on almost one-half of the ISP interconnection points. To make it work, all ISP interfaces using legacy ATM technology would have to be migrated to IP interfaces. 31. In contrast, we can apply AVP irrespective of the ISP's interconnection technology, and can even do so retroactively from the launch of our GAS-FTTN services. Small ISP Implementation Issues 32. Third, 65% of our wholesale GAS customers have less than 1,000 end-users. These are very small ISPs that frequently need the support of our technical staff. AVP comes with tools to allow wholesale ISPs to see their total traffic volume, and network 1 The Companies(CRTC)29Apr11-5 TNC

11 usage at an end-user level. This provides wholesale ISPs greater network intelligence to manage their networks as they see fit. This is not possible with 95 th percentile. 33. Further, we expect that smaller ISPs will not be able to control unexpected temporary spikes in traffic demands, which may cause their 95th percentile fees to increase greatly. This will lead to extra costs for small ISPs and, potentially, billing disputes. 34. In contrast, it will be relatively straightforward for a smaller ISP to implement and understand AVP and limit its traffic. Gaming 35. Fourth, as CNOC pointed out in an interrogatory response, 2 there is no mechanism for us to differentiate between business and other non-usage paying traffic, and GAS residential traffic. The only way to separate the charges is for each ISP to separate its traffic into pipes that are only used for residential services as distinct from pipes used for non-usage paying traffic. As such, wholesale ISPs who want to reduce their 95 th percentile charges may be incented to send residential traffic to their business pipe to avoid the usage billing model. Reconciliation 36. A fifth flaw with 95 th percentile is that it would be more difficult to reconcile amounts to be billed, given that measures are unlikely to be made at the exact same 2 CNOC(The Companies)29Apr11-4 TNC

12 moment in time by the wholesale ISP and the network provider. For example, if the network provider measures throughput at 8:00 PM for a given wholesale ISP and that ISP takes it own measure at 8:01 PM, the measured throughputs may vary significantly, even if they are measured at the exact same location. 37. For these reasons, 95 th percentile is inferior to AVP as an ITMP. Question 2: If a usage component is adopted, which of the two different methods proposed for measuring usage should the Commission adopt? (a) via peak traffic, or (b) via volume Provide the rationale for adopting either in terms of the impact on the independent ISPs' monthly rates and their flexibility to compete in the market. Identify and quantify any one-time or ongoing implementation issues. Question 3: Are there significant differences between the billing models in terms of impacts on incentives to build out networks and manage traffic? 38. Turning to the next two questions, usage should be measured on total monthly volume, rather than via samples of the ISP's peak traffic volumes, for all the reasons I just described (the answer to question 2). Further, because AVP better aligns the wholesale ISP's incentives to reduce congestion throughout the month, and not just at the instant it peaks during that month, AVP will better incent ISPs to manage their traffic. And because AVP results in network providers being paid for the aggregate volume of traffic on their networks, appropriate incentives to invest will be provided, so long as prices are set at an acceptable level (the answer to question 3).

13 Question 4: Should there be symmetry with respect to the mark up on costs for all network providers? 39. As for the fourth question, the Commission determined in last year's Speed Matching decision 3 that there should be one mark up for ILEC legacy GAS and a higher mark up for GAS provided on FTTN networks. That is appropriate and we have no issue with that being applied symmetrically to all network providers. 40. As for the level of mark up to be specifically charged for usage, whatever mark up the Commission decides is appropriate in this proceeding should apply to all network providers. Question 5: Should the same mark up apply to monthly access rates and usage rates, whether billed jointly or separately? 41. In response to the Commission's fifth question, the mark ups for access and usage rates should not be the same. Mandatory access to our network and thus the mandated mark up for access - reflects the Commission's policy objectives to increase retail competition through traditional wholesale regulation. Monthly access rates are not designed to be ITMPs. In contrast, AVP is designed to be an economic ITMP, and thus serves additional policy objectives. There is no reason for usage charges to be constrained by mandated mark ups associated with network access. 3 Telecom Regulatory Policy CRTC , Wholesale high-speed access services proceeding, dated 30 August 2010.

14 Question 6: Should the principles determined by the Commission in this proceeding, including principles regarding the billing models and the mark ups apply equally to legacy (existing) services, or should legacy services be treated differently? 42. Finally, you have asked whether the principles determined in this proceeding should apply equally to legacy services, or whether legacy services should be treated differently. The same principles should apply to both legacy and FTTN, but with important distinctions in how those principles are implemented. 43. Unlike GAS-FTTN, for which our proposed monthly access rates exclude usage costs, legacy GAS access rates have always included a certain amount of assumed usage. For legacy GAS, we therefore propose to give wholesale ISPs a credit for the assumed usage that is already covered by the monthly access rate. This does not apply different principles to legacy. It recognizes that our proposed GAS-FTTN access rates exclude all usage-driven costs, but our legacy services do not. 44. To do otherwise would be highly disruptive. The current price levels for legacy GAS have been in the market for some time. Changes to those rates would affect over one hundred wholesale ISPs by re-pricing services used by hundreds of thousands of their end-users. Material changes to legacy GAS price structures and/or rate levels would lead to billing disruptions and significant revenue impacts for us. We are comfortable with the existing price structure for legacy GAS, as we believe most ISPs are. 45. This concludes our remarks. We welcome your questions. *** End of Document ***