It’s good news for Canadian consumers, and potentially bad news for Canada’s dominant Internet providers.
A recent ruling from Canada’s telecom watchdog means Canadians could soon be seeing cheaper Internet bills and more choice in Internet providers, but the move could also threaten profits at Canada’s major telecoms, experts predict.
The Canadian Radio-television and Telecommunications Commission (CRTC) last Thursday ordered the major internet service providers (ISPs) to reduce the prices they charge to retail competitors who buy space on their networks.
“Canadians’ access to a choice of broadband Internet services would have been at stake had we not revised these rates,” CRTC chairperson Jean-Pierre Blais said in a statement.
CRTC chairperson Jean-Pierre Blais. (Photo: The Canadian Press)
The rates that the major ISPs proposed charging for access to their high-speed networks “were not just and reasonable and had to be revised downwards,” the watchdog said in its ruling.
“The CRTC is very concerned that certain large companies have not conducted their cost studies in accordance with well-established costing principles and methodologies.”
The revamped rates mean that small Internet companies like TekSavvy and Distributel will see their monthly access costs drop by as much as 89 per cent, while additional charges for bandwidth capacity will drop by up to 39 per cent, the CRTC said.
The large providers that will have to provide cheaper access to competitors are Bell Canada, Cogeco, MTS, Rogers, Shaw, Telus and Videotron. SaskTel’s proposed wholesale rates received CRTC approval.
“We believe it is likely that some of those cost savings will be passed on to the consumer and thus have the potential to pressure incumbents to respond,” Desjardins Capital Markets analyst Maher Yaghi said in a client note.
But he noted that the small ISPs could simply choose to pocket the savings themselves.
“It really puts us on a much better footing to compete and deliver value.”
Matt Stein, a spokesperson for the Canadian Network Operators Consortium, which represents small ISPs, told the Financial Post he expects prices for consumers will come down once the CRTC finalizes the new rates.
“It really puts us on a much better footing to compete and deliver value,” he said.
Besides lower prices, the move could mean more options for consumers. Yaghi believes price competition could mean the big Internet providers will create cheaper “flanker brands” for Internet service — in much the same way they developed flanker brands for wireless service. (Bell owns Virgin, while Rogers owns Fido and Telus owns Koodo.)
But Yaghi notes the new arrangement could put a crimp in the big telecoms’ bottom lines, as these companies had been relying on higher internet prices to offset declining cable TV and home phone revenue.
The new rules will “shift economic value from [the big telecoms] to the consumer,” Yaghi wrote.
In other words, more money in your pocket, and less in theirs.