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The Real Story Behind TekSavvy's Pricing Changes: Competition

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TekSavvy announced a series of new pricing plans for its Internet services yesterday in the wake of the CRTC usage-based billing decision. The focal point of most media coverage theNational Post, CBC, Globe) is that costs are increasing by $3 - 4 per month, a move attributed to the CRTC decision which implements a capacity-based model for pricing of wholesale Internet services. While Peter Nowak says this portends a "dystopian future," I remain far more optimistic.

The TekSavvy plans offer both cable and DSL services at different price points, speeds, and usage rates. For example, its fastest cable service offers 24 Mbps with 300 GB per month for $46.95 or an unlimited amount of data for $61.95. The DSL service offers even greater variety with higher price points for its fastest service and a very basic, cheap service of 3 Mbps with a 25 GB cap for $24.95 per month. The DSL service also introduces off-peak usage for the 300 GB plan with usage during off-peak periods not counting against the usage cap. 

These plans are far superior to those offered by Rogers or Bell. The most comparable Rogers
plan offers the same speed (24 Mbps) but imposes a 100 GB cap for $60/month. In other words, same speed, same price but 100 GB vs. unlimited data. The Rogers basic lite plan of 3 Mbps has a 15 GB cap for $35.95 per month (less data and significantly higher price). The Bell pricing is similar -- its 25 Mbps service is $59.95/month ($27.48 for the first 12 months to get customers to switch) but comes with 100 GB cap. Its basic service costs $33.95 per month for 2 (NOT SURE IF WE SPELL UT NUMBERS IN THIS CONTEXT) Mbps and just 2 GB of data.

Meanwhile, Montreal-based ISP Electronic Box has also announced new rates in Quebec that feature similar differences between cable (cheaper) and DSL services. In fact, the Electronic Box pricing is coming down for its cable package as consumers will be able to purchase a 60 Mbps service with a 250 GB cap for $54.95.

The same speed service previously came with a 150 GB cap priced at $79.95. The DSL pricing is
going up but the ISP also offers an off-peak plan that does not count against the cap and is longer than TekSavvy's as it runs from 2 a.m. until noon (TekSavvy until 8 a.m.).

By comparison, Videotron charges$82.95 for its 60 Mbps service with a 150 GB cap.

So what is the real story here?

I don't think it is that TekSavvy is increasing prices by a few dollars per month. First, the TekSavvy increases pale in comparison to what the company announced last year when implementation of UBB appeared imminent. At that time, it promised usage caps starting at 25 GB in Ontario.

Second, the TekSavvy price increases are also smaller than those imposed by incumbents like Rogers. One need only search for Rogers Internet price increases to see increases or limitations of service (that effectively meant paying the same for less) on at least an annual basis -- 2009, 2010and 2011.

Third, the Electronic Box pricing demonstrates that prices may come down in some places.

Rather than focusing on cost, the real story is competition. This announcement is precisely what the CRTC had in mind when it released its decision. TekSavvy is offering far better plans than the
incumbents. For those consumers in Ontario frustrated with small caps or high prices, you have an alternative.

TekSavvy's ability to offer unlimited plans and 300 GB for the same or less than the incumbents highlights just how uncompetitive the Canadian marketplace has been and debunks claims that low usage caps are directly linked to provider costs.

TekSavvy is doing more than offering better value plans, however. The greater variability in speeds and the inclusion of off-peak data usage from both TekSavvy and Electronic Box demonstrates how independent providers can begin to differentiate their services from the incumbents.
As I argued after the CRTC's decision in November, expect to see more of this as the independent ISPs grapple with the new regulatory framework.

The differences between cable and DSL pricing point to another form of competition. A consumer looking to switch to TekSavvy or Electronic Box is very likely to switch to their cable product, which is significantly cheaper for the same speeds and data usage. If this trend continues, Bell will begin to lose serious wholesale market share as users leave the Bell network for cable via the independent ISPs. This may generate new wholesale competition as Bell lowers wholesale pricing so that it is more competitive with the independent ISP cable offerings.

While the CRTC pricing remains a concern (a new filing by the independent providers indicates a challenge is coming soon), it seems that we will see real product differentiation. This doesn't mean scrimping on data with middle of the night Netflix viewing (as Nowak suggests) since 300 GB caps allow subscribers to watch three movies a day every day and still have about 120 GB left over each month (or more than the entire Rogers cap).

Rather, it means the very real fears of 25 GB caps with no practical competitive alternatives -- which was the future many in Ontario were facing less than one year ago -- are over. That's the real story from
yesterday's TekSavvy announcement, not the price increase that still leaves the company with a better value proposition than the incumbents.

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