Bandwidth Caps, Bankers and the Canadian Pay-Per Internet Model

Not being the quickest guy with numbers, I often wonder just how much of what we can do on the Internet before hitting the Rogers ‘Bandwith Cap” wall that comes with my service? Using Rogers high-speed express service, I get 60GB per month, after which I will have to fork out $2 per GB.

I mean, first of all, just having to even think about this, let alone having to calculate it is a pain in the neck.  The Globe and Mail had a good break-down the other day of how much bandwidth is involved in downloading email, music files, tv programs and movies. Here’s its graphic.

So, I could send 4 million emails or download 8,570 songs, 37.5 television shows (hd) and 19 movies (hd).  Even if I’m a mad, crazy emailer or music downloader, I’d unlikely hit the limit. But, then again, what if I had a mass distribution list for the eco-feminist news letter I send out to 2,000 people every month, or to my red meat eaters club?

What if I play World of Warcraft? If you think I’m being funny, well, I am trying. But take a look at Teresa Murphy’s letter to the CRTC outlining how Rogers throttles World of Warcraft players. The problem is that restrictions and limits on how we use the Internet are popping up all over the place and for everyone, not just the villified ‘bandwidth hogs’.

The limits are also impinging on how Netflix operates in Canada as well. On March 28 2011, Netflix set the default quality of its video streaming service in Canada to low to help people conserve bandwidth.

In other words, Netflix has deliberately degraded it services relative to what it offers in the U.S. in response to the restrictive conditions imposed by the ‘big six ISPs’ in this country: Bell, Telus, Shaw, Rogers, Quebecor and Cogeco.  Users do, however, have a choice and can still select from three settings:

1. “Good” – The default setting with good picture quality and lowest data use per hour (about 0.3 GBytes/hour)
2. “Better” – Better picture quality and medium data use per hour (about 0.7 GBytes/hour)
3. “Best” – Best picture quality and highest date use per hour (generally about 1.0 GBytes/hour – or up to 2.3 GBytes/hour when streaming HD content)

Tying up the Internet and its users in a thicket of technical and economic restrictions, however, could come back to bite the big 6 in the ass. For that too happen, however, we probably shouldn’t look to the CRTC or to the Harper Government.

The CRTC has already brazenly said that the review sparked by the furor over its January 25, 2011 UBB decision will be narrowly focused on that decision alone. In doing so, it ruled out a critical public examination of the ‘long march’ to the pay-per, provider controlled Internet model in Canada.

Industry Minister Tony Clement is a little more ambivalent on the matter. He offered no rebuke to the CRTC for stubbornly sticking to its myopic focus. He did, however, rebuke Bell’s attempt to replace its wholesale UBB with a new Aggregate Volume Pricing Model.

There are two more interesting areas that hold better prospects of turning this wreck of a digital media policy around, and both lead straight not to the consumer Internet market but rather to the capital investment market.

In a study by the New York branch of the investment bank, Credit Suisse, the author stated that the added cost of using over-the-top video services such as Netflix, AppleTV, etc. due to ‘excess usage charges’ (but which the “big six” exempt their own video/tv services from) could result in people cutting back on their cable and satellite bills. They could do that either by subscribing to a cheaper tier of channels, or dumping cable and satellite TV altogether.

The latter is improbable, at least in any great number, anytime soon.  The idea of cutting back to a cheaper tier of cable channels while cobbling together a range of over-the-top services such as Netflix, Boxee, etc., however, may have more legs. That scares the investment bankers because cheaper tiers mean lower ARPUs (average revenue per user), in the lingo, and that is one of the holy grails for figuring out how much companies are worth on the stock market, i.e. their market capitalization.

The UBB uproar has also spawned fears in the capital investment markets in Canada that Bell, for one, is taking seriously. Thus, during a Conference Call on February 10 2011 with Canada’s leading investment bankers, Jeff Fan of Scotia Capital posed the following question to George Cope, BCE’s CEO:

Yes, good morning.  Thanks very much.  I want to ask you guys about the broadband situation that’s going on.  A lot of  investors are obviously quite concerned about what’s going on on the regulatory front with usage-based billing so perhaps can you give us a sense of what . . . the impact of this could be should the government move forward on a more Draconian basis? (emphasis added, see page 12)

Fan was not alone in raising the issue. And Cope went on and on to assuage any concerns. But look again at the last line in Fan’s quote that brands any attempt by regulators to roll back the pay-per Internet model juggernaut would be “Draconian”. Clearly, investment bankers are not on the side of the ‘good and the just’, but their fears reveal cracks in the walls that may play well into the hands of those who do want to turn back the tide.

These are important things to bear in mind as the politics of the Internet unfold. I’ve said in the past that the CRTC is constrained by a heavy-handed and interventionist Harper Government. It is also constrained, apparently, by perceptions on Bay Street. It is also limited by its own timidity.

Nonetheless, there is scope for maneouvre in all this. So long as World of Warcraft players and Internet users of the world unite there may yet be opportunity to stem the tide. A quick search of the Internet shows that others around the world wish Canadians well in their battle against a model that they hope never sees the light of day in their own countries (or more correctly, hope that it never becomes the norm, as it is in Canada, as Professor Geist’s recent study shows).