At Bell, Business is Good (short version)

It used to be that universal telephone service was achieved through a cross subsidy flowing from business to residential users. Businesses were heavy users of long distance services, which were provided above cost to ensure that all Canadians had access to local telephone service.

That practice went out the window with the introduction of competition, which today is relied upon to ensure that rates are “just and reasonable” through economically efficient allocation of resources through market mechanisms. Competition is supposed to ensure that rates are fair for all users by driving prices toward costs.

I recently came across something which may cast doubt on the notion that today’s pricing for Internet access fits the “just and reasonable” mould: in at least some circumstances, business users are currently paying less than residential subscribers for substantially better service.

For example:

Bell Business Fibe vs Residential Fibe

Bell Business Fibe vs Residential Fibe

While these plans may look similar, there is one important difference: unlimited usage is built into the price of business service, while residential users must pay an additional $30 a month to get unlimited Internet. In effect, Bell is charging businesses less than individual Canadians for a service of greater value.

Put another way, residential users pay roughly the same price for capped Internet that business users do for unlimited.

Bell Fibe Unlimited terms Business vs Residential

Bell Fibe Unlimited terms
Business vs Residential

 

If Bell can turn a profit charging business users $56 for unlimited Internet (with “better support” adding insult to injury), then how is the $87.95 price tag for the same service to a residential customer justified? Or, alternately, how does Bell justify capping residential users at the ~$56 price point? And what happened to stopping the bandwidth hogs?

What does this say about the efficiency of pricing, and by implication the state of competition in the residential broadband market?

In theory, competition is supposed to eliminate undesirable or inefficient (thought to be coequal) allocation of resources. In practice, however, pricing of services in a regulated industry (even when regulation is designed primarily to achieve competition) reflects social and political judgments, not just economic ones, about who gets access to service and on what terms. What we see here is forbearance empowering service providers like Bell to impose their own judgments on the structure of the broadband market. And it looks like Bell thinks business users should pay less than residential users for better service. Pricing that is preferential toward business is clearly consistent with a policy that promotes e-commerce, which could arguably use a boost in Canada. But what about ordinary users?

There is evidence which suggests that we should be doing better. Broadband penetration (of at least 5Mbps) remains stubbornly low at 67% of households. (CRTC CMR 2014, Table 5.3.0) Usage remains capped for the most part (with the exception of independent ISPs), and let’s not get started on the telco customer service horror stories. Industry Canada has announced measures to fund expansion of services to rural areas, but similar efforts have been tried before with less than spectacular results, and the current “Connecting Canadians” program has been regarded as weak by industry observers.

The CRTC is currently undergoing proceedings in all three major areas: broadcasting, mobile wireless, and wired telecommunications. Next year it is scheduled to begin a proceeding to examine whether its “basic service obligations” are being met. Front and centre at all of these proceedings is the issue of whether Canadians have affordable access to high quality communications services. I hope that both participants and the Commission will be open to consider the extent to which competition is serving the goals of Canadian telecom policy, viewed not just from the perspective of economic efficiency but from the social side of things as well.

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6 comments

  1. Devil’s advocate: If real-time entertainment accounts for the greatest portion of internet usage then wouldn’t home users use more internet and therefore Bell would be justified in charging them more? Pretty sure there are time of day peak internet usage charts that show home usage is greater than work usage due to netflix, bittorent etc.

    1. I think your pitchfork would be a lot sharper if the carriers were implementing peak billing rather than monthly bit caps.

  2. Let me put it this way. They are offering unlimited internet to a group is is unlikely to use it and not offering it to a group that will. We know that during business hours real-time video viewing is not at peak. Instead, it’s at peak when people are home; so we can tell from this residential users are likely to make use of the unlimited bandwidth.

    1. If the cost of the resource (peak network capacity) is to be borne by those who generate demand, shouldn’t they get what they pay for?

    2. Also, would it be a broad generalization to say that “small business” internet users won’t make use of their capacity while residential users necessarily will?

  3. Well no I don’t think it’s a generalization. Most of top 10 upstream and downstream traffic is consumer service related not business service. Even if we said all of Tunneling (VPN) services were work related that only accounts for less than 4% upstream and down stream. Look at the Sandvine Data.

    Could you clarify this statement: “If the cost of the resource (peak network capacity) is to be borne by those who generate demand, shouldn’t they get what they pay for?”

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